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Design Wins Increase Micron’s Compute and Networking Revenue

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Dec. 4 2020, Updated 10:42 a.m. ET

Revenue by segment

In the previous part of this series, we saw that Micron Technology’s (MU) DRAM (dynamic random access memory) revenue rose while its NAND revenue fell in fiscal 3Q16. However, gross margin fell for both products as the ASP (average selling price) fell faster than cost.

The company sells these products in four end markets from its related segments:

  • Compute and Networking
  • Storage
  • Mobile
  • Embedded

Micron’s partner Intel (INTC) also caters to these four markets. Let’s look at each of these four segments in detail.

CNBU (Compute and Networking Business Unit) is Micron’s largest business segment, accounting for 38% of the company’s revenue in fiscal 3Q16. The unit contributed 25% toward DRAM revenue and 55% toward NAND revenue.

CNBU comprises the Enterprise, Cloud, Graphics, and Client segments. Intel is Micron’s key customer for its DRAM products.

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CNBU’s financial performance

In fiscal 3Q16, revenue from CNBU fell by 28% YoY (year-over-year) but it rose by 4% quarter-over-quarter to ~$1.1 billion. This was the first sequential revenue growth in the past six quarters.

CNBU’s non-GAAP[1. generally accepted accounting principle] operating margin fell from 17.6% in fiscal 3Q15 to -5.8% in fiscal 3Q16. The margins were significantly affected by steep declines in DRAM prices.

The company continued to secure design wins across all four segments of CNBU, with 8GB[2. gigabit] DDR4 product securing the highest wins in the enterprise, cloud, and client spaces.

  • Intel’s new Skylake server platform increased demand for Micron’s 20nm 32GB DDR4 (double data rate) in the enterprise space.
  • Micron ramped up production of its 20nm 4GB DDR3 and 8GB DDR4 solutions in the client space. The company stated that pricing improved in the client space but it didn’t reflect in its fiscal 3Q16 earnings.

NVIDIA’s (NVDA) revolutionary Pascal GPU (graphics processing unit) drove demand for Micron’s GDDR5 (double data rate type five synchronous graphics random access memory) and GDDR5X in the graphics space.

Advanced Micro Devices (AMD) has also integrated GDDR5X in its Polaris GPU, but it sourced the memory from SK Hynix. Micron expects strong growth from the graphics segment in fiscal 4Q16, driven by the virtual reality and seasonal demand.

While the design wins were quick in the Compute and Networking segment, they were slow in the Mobile segment. We’ll look into this in the next part of this series.

The iShares S&P 500 Value ETF (IVE) has holdings in large-cap US equities listed on the S&P 500 Index. It has ~1.0% exposure to INTC and 0.08% exposure to MU.

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