Why Samsung’s Expansion of DRAM Production Is an Issue for Micron



DRAM is a major contributor to Micron’s overall revenues

In fiscal 3Q15, DRAM (dynamic random access memory) contributed 61% to Micron’s (MU) overall revenues. Micron’s DRAM segment got a tremendous boost when the company acquired Elpida, based in Japan (EWJ), in 2013. The Elpida acquisition not only increased Micron’s DRAM revenues, but also gave it access to Apple (AAPL), a key customer. The acquisition also enhanced Micron’s presence in the mobile DRAM market. Mobile now represents approximately 25% of the company’s DRAM business. Prior to Elpida’s acquisition, Micron generated less than 10% of its overall revenues from mobile DRAM.

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Samsung (SSNLF), Micron’s peer in the semiconductor space, also aims to expand its operations. Samsung’s DRAM contribution to overall revenues increased from 36% in 1Q14 to 41% in 4Q14. Also, Samsung is said to supply the majority share of DRAM for Apple’s iPhone 6S. Samsung earlier used Qualcomm’s (QCOM) Snapdragon processor and was thus its key customer. Now Samsung plans to use its in-house products.

According to Trendforce, and as the above chart shows, Apple and Samsung together commanded approximately 48% of all smartphone shipments in 1Q15. Samsung is the world’s top seller of Google (GOOG) Android-based smartphones. Thus, by supplying DRAM to Apple, Samsung has in a way prevented other manufacturers from developing a relationship with Apple, and thus secured its position in this space.

Approximately 20 million pre-orders were booked for Samsung’s Galaxy S6. Although Apple is a customer of Micron, its contribution to Micron’s revenue is not known. Earlier, Apple contributed ~10% towards Micron’s total revenues. Apple and Samsung control almost ~50% of the smartphone market, and the more they expand, the less the DRAM demand will be for Micron.

If Apple and Samsung continue to capture more and more mobile phone market share, it will be more bad news for Micron. In the last year, Micron’s stock fell ~30%. Poor fiscal 3Q15 results exacerbated Micron’s concerns, and in just the last month, Micron’s share tumbled by 33%.


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