Micron’s Transition to 3D NAND Temporarily Reduces Storage Revenue



Storage segment

In the previous part of this series, we saw that Micron Technology’s (MU) Embedded segment is growing, driven by strong demand in the automotive space. The company is also seeing revenue growth in the Mobile and Compute segments.

However, the company’s Storage segment is slowing as the company transitions to 3D NAND technology.

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Financial performance

In fiscal 3Q16, Micron’s SBU (Storage Business Unit) revenue fell by 20% on both a YoY (year-over-year) and quarter-over-quarter basis to $719 million. The segment’s non-GAAP[1. generally accepted accounting principle] operating losses almost doubled from $33 million in fiscal 3Q15 to $62 million in fiscal 3Q16. SBU accounted for the low 20% range of Micron’s DRAM revenue and 13% of NAND revenue.

Micron’s revenue fell and its losses widened, as the company is refreshing its SSD (solid state drive) portfolio. The company reduced production of planar NAND in fiscal 3Q16, which reduced the sales of its Client and Consumer SSD segment by 20% quarter-over-quarter and its Enterprise and Data Center SSD by 10% quarter-over-quarter.

On the other hand, rival SanDisk’s (SNDK) revenue from its Client and Enterprise SSD segment rose. Western Digital (WDC) is acquiring SanDisk to benefit from the growth in the SSD market.

Technology in SBU

Revenue is expected to pick up as Micron rolls out its 3D NAND SSD portfolio. However, the overall demand is now shifting toward smart memory, where data centers are looking for hyperscale computing.

Addressing this demand, Micron has launched its Accelerated Solutions of Enterprise SSDs and advanced DRAM, which combine the Compute and Storage segments to deliver high efficiency and performance in storage solutions.

Micron has also announced 110 SATA (Serial AT Attachment) client SSDs based on TLC (triple levels cell) 3D NAND technology. It is also working on implementing its revolutionary 3D XPoint technology, which it developed with Intel (INTC), in the data center space. This new technology would facilitate real-time data analytics.

IDC (International Data Corporation) forecasts global SSD shipments to grow at a CAGR (compound annual growth rate) of 16.9% between 2015–2020 as SSD adoption increases in the PC and enterprise data center market. Micron would face tough competition from SanDisk, which is ramping up its production of 3D NAND in collaboration with Toshiba (TOSBF).

Micron continues to invest in new technology and product designs to implement these technologies. This requires a large investment. Next, we’ll look at the company’s balance sheet and understand its capacity to fund long-term investments.

The PowerShares QQQ ETF (QQQ) has holdings in technology stocks, including ~8.4% holdings in semiconductor stocks. It has 2.9% exposure to INTC, 0.25% exposure to WDC, and 0.24% exposure to MU.


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