Micron’s Compute and Networking business
In the previous parts of the series, we saw that the condition of DRAM (dynamic random access memory) oversupply has now come under control as suppliers have reduced their DRAM productions. Things also improved in the NAND market as prices began to improve. Let’s now take a look at the demand situation.
Micron Technology (MU) serves four major market segments: Compute and Networking, Mobile, Storage, and Embedded. It earns 37% of its revenue from the Compute and Networking segment, which supplies memory chips to PCs, enterprise, networking, and graphics products.
DRAM demand grows
Falling PC sales impacted all semiconductor companies with exposures to the PC market. Many companies, including Micron, have shifted their focuses away from the PC market and toward other markets such as smartphones and IoT (Internet of Things).
At the Citi Conference, Micron’s chief financial officer, Ernie Maddock, stated that PC sales haven’t been as bad as expected, as the holiday season has arrived. In September 2016, many new products have been launched as PC makers prepare for the holiday season.
- Micron’s DRAM partner Intel (INTC) launched its new generation of PC processor, Kaby Lake.
- Advanced Micro Devices (AMD) launched its 7th Generation A-Series processors for desktops.
- NVIDIA (NVDA) launched many versions of its Pascal GPUs (graphics processing unit) aimed at VR (virtual reality) technology.
DRAM supply falls
While demand can rise and fall immediately, supply can’t. Memory makers are no longer expanding their DRAM productions. Any increase in supply will likely only come from a technology transition. At present, Samsung (SSNLF) and SK Hynix have slowed their investments in DRAM technology transitions.
With demand rising and supply remaining stable, PC contract prices rose in July and August 2016. This could have a positive impact on Micron’s Compute and Networking segment’s earnings in fiscal 4Q16.
HP fears memory supply shortage
Micron’s key customer, Hewlett-Packard (HPQ), stated in its recent earnings report that it intended to stock up on memory inventory due to its fear of a supply shortage, which could arise from a shift in memory suppliers’ focus toward smartphones.
Explaining this situation, Maddock stated that every company has its own dynamics for maintaining inventory, and that HP’s inventory probably became too depleted. With DRAM prices stabilizing and NAND prices growing, it wanted to protect itself.
Micron has also witnessed strong demand from mobile customers. We’ll look into this in the next part of the series.