Demand and supply of memory products
We’ve already discussed how Micron Technology (MU) expects demand for NAND (negative AND) to grow faster than demand for DRAM (dynamic random access memory). But the right product mix could enhance DRAM growth and low costs could enhance NAND growth. Now let’s look at the supply-side scenario.
Micron expects DRAM supply to grow in the range of 20%–25% in 2016 and then to slow to less than 20% in 2017. DRAM bit supply growth is slowing because the technology is reaching scaling limits. According to Moore’s law, with every shrink in node size, the power efficiency and performance improves, but the cost per bit falls. However, Moore’s law is coming to an end because a further reduction in node size is increasing the cost per bit.
RBC Capital Markets analyst Amit Daryanani expects Samsung (SSNLF) to reduce its spending on DRAM by 51% YoY (year-over-year) to ~$1 billion in 2016 as demand slows. However, Micron expects that DRAM supply growth will be driven by the diversification of products.
On the NAND front, supply growth should mainly be driven by investments made by market players. Let’s try to understand this in detail.
Micron expects supply growth to be slow in 2016, as memory manufacturers transition to 3D technology. The supply growth should then gather pace in 2017, and over the long-term, it might be unable to keep up with demand, as technology migration alone would not be able to increase supply due to scaling limits. Hence, NAND supply growth is expected to depend on the ROIC (return on invested capital).
Given the strong growth potential of 3D NAND, Intel (INTC), SanDisk (SNDK), Toshiba (TOSBF), and Samsung are all investing in ramping up production. Even Micron is preparing to tap these opportunities by investing in memory technologies and capacity. Notably, the PowerShares QQQ (QQQ) has ~8.1% of its total holdings in semiconductor stocks, including 2.99% in INTC and 0.21% in MU.
Continue to the next part for our analysis of Micron’s growth strategy in 2016.