Pricing concerns in the DRAM market
In fiscal 3Q15, Micron (MU) blamed lower dynamic random access memory (or DRAM) average selling prices for its poor performance. Ongoing sluggishness in the PC market has led to the softness in DRAM pricing. Decline in DRAM pricing results in lower margins for Micron. Thus, Micron’s 3Q15 earnings reflected this increasing concern regarding the pricing in the DRAM market. It is yet to be seen if the impending release of Microsoft’s (MSFT) Windows 10 brings any respite to the flailing PC market.
Oversupply in DRAM market is a poignant issue surrounding Micron’s prospects
The DRAM space is an oligopolistic space. As the chart above shows, in 2007 11 companies produced DRAM chips in ~40 facilities worldwide with installed capacity growing by 40% to 50% on a year-over-year basis from 2003 to 2007. However, since then, consolidation has happened, and companies operating in this space have shrunk from 11 to six players with only 20 facilities in production. The top three players in the DRAM market, Samsung Electronics (SSNLF), SK Hynix Semiconductor, and Micron Technology, together now control more than 90% of the market.
The declining popularity and sluggish growth in the PC market due to the SMAC (social, mobile, analytics, and cloud) revolution has caused an oversupply and declining demand for DRAM chips. Oversupply eats into producers’ profit margins. And an increase in mobile DRAM sales is putting pressure on DRAM prices, consequently impacting semiconductor companies.