Product mix drives revenue in the short term
In the previous part of this series, we saw that Micron (MU) is increasing its capital expenditure, which will generate benefits in the long run. In the short term, the company will leverage its product mix strategy according to seasonal demand trends, to boost revenue and gross margin.
Micron designs its product mix in response to changing demands and the pricing environment. At present, the company is shifting its production away from PCs (personal computers) towards mobile and embedded solutions. Intel (INTC) has followed the same strategy after being hit by softness in PC demand.
Estimated product mix
While it is difficult to predict future product mix, Micron has drawn a rough estimate by looking at today’s demand trends. It expects that the mobile market will continue to grow, while the PC market will be flat or fall slightly. Furthermore, Micron expects that the embedded market will grow, driven by automotive, gaming, and an increasing number of embedded devices. In the networking and server space, the company expects its DDR4 (double data rate fourth generation) DRAM (dynamic random-access memory) to drive growth.
Storage business unit
In fiscal 2015, the storage business unit was plagued by negative operating margins as the company increased spending in 20 nm (nanometer) and 16 nm TLC (triple-level cell) NAND flash memory. Smaller chips will help Micron compete with Samsung (SSNLF) in terms of cost and would therefore improve Micron’s margin in this space. Micron CEO (chief executive officer) Mark Durcan stated that the transition to 16 nm would boost production, increasing TLC NAND’s share in the product mix into the 20% range in fiscal 1H16.
TLC NAND is sold to low-end customers, where margins are low. Micron is seeing a resurgence in demand for its MLC (multi-level cell) technologies from high-end customers, where margins are high. The company will design product mix with market opportunity and customer needs in mind.
Micron bullish on mobile
The acquisition of Elpida Memory secured Micron a huge order for Apple’s (AAPL) iPhone. Micron is bullish on the mobile market despite the slowdown in China (FXI), a global mobile phone manufacturing hub. It expects memory content across the smartphone segment to continue to grow. In the next part, we’ll discuss Micron’s other future growth strategies.