Micron’s exposure to various risks
Previously in this series, we looked at the external risks that can plague Micron Technology’s (MU) operations. We’ll now evaluate some organizational and technological risks that pose particular threats to Micron’s operations.
Slow adoption of emerging technology
The slower adoption of emerging technologies has been a major cause of downfall in the semiconductor space. For instance, Elpida became bankrupt because it was slow to adopt the emerging trend of mobile DRAM.
For a particular technology to deliver maximum returns on investments, it has to be timely and cost-effective and deliver high performance. For Micron, there’s always a high risk of a competitor developing high performance, cost-effective technology before it can, thus rendering its existing technologies obsolete. As we saw previously in this series, Samsung Electronics (SSNLF) overtook Micron in the implementation of 20-nm and 3D NAND Flash technology. As the above graph shows, Micron also faces tough competition from SK Hynix, Toshiba Corporation (TOSBF), and SanDisk (SNDK) in the technology race.
Failure of new products
The success of a new product depends on its ability to reduce costs, deliver improved performance, and improve power consumption and reliability. Innovation is a trial-and-error process. There’s no assurance that the new technology can be manufactured cost-effectively, would be competitive, and can generate sufficient margins from sales to recover cost. The cost of developing a new product is high, and product failure can adversely impact Micron’s business.
Thus, Micron has to mitigate these risks by developing products in collaboration with technology partners. For example, it developed 3D XPoint nonvolatile memory technology in partnership with Intel Corporation (INTC).
Micron has a diverse product portfolio, which limits its ability to reduce manufacturing costs for some products because production quantities may be too low. Any adjustment in product mix would require transitioning in process technology, which adds to manufacturing cost. Such transitions could stall production at a fabrication plant for months, which would impact Micron’s sales in the short term.
However, Micron has the advantage of easy transitions, as the manufacturing processes of DRAM, NAND Flash, and NOR Flash are similar on many levels. For example, the company transitioned one of its fabrication facilities in Singapore (EWS) from DRAM to NAND Flash in 2014.
In the next part of this series, we’ll look at Micron’s response to diversified demands for memory products.