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Micron Benefits from Memory Market’s Faster Growth Rate

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Growth forecast for the memory market

The memory market is seeing strong growth as more devices use memory chips. Micron Technology’s (MU) chief financial officer Ernest Maddock talked about the memory market trend at the Robert W Baird 2017 Global Consumer, Technology & Services Conference.

Currently, the overall semiconductor market is worth $385.0 billion, of which the memory market is worth $110.0 billion. Many research firms expect the memory market to grow faster than the overall semiconductor industry. The overall semiconductor market is expected to grow 12.0% YoY (year-over-year), while the memory market is expected to grow 40.0% YoY in 2017.

Who would benefit from this growth?

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Memory market consolidation

The memory market has two major segments: DRAM (dynamic random access memory) and NAND. Memory cyclicality has seen the memory market consolidate over the years from as many as 32 DRAM companies to just three: Samsung (SSNLF), SK Hynix, and Micron. On the NAND side, there are four major IP (intellectual property) holders: the Micron-Intel (INTC) joint venture, the Toshiba (TOSBF)–Western Digital (WDC) joint venture, Samsung, and SK Hynix.

On the DRAM side, the market share is more or less the same since Samsung has a technology lead over SK Hynix and Micron. Samsung leads with a ~45.0% market share, followed by SK Hynix and Micron in second and third place.

The above three players operate in both the DRAM and NAND markets, whereas Intel, WDC, and Toshiba only operate in the NAND market. That gives Samsung, SK Hynix, and Micron a competitive advantage since they can operate in hybrid memory markets such as eMCP (embedded multi-chip packages) and automotive memory, which features both DRAM and NAND.

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Memory market’s aggregate profits increase

Consolidation in the memory market has resulted in profit distribution among fewer players. The memory market is also diversifying.

Earlier, memory sales were largely driven by PC (personal computer) sales. The mobile revolution expanded the memory market’s customer base to include smartphone vendors. Now, the AI (artificial intelligence) revolution is not only expanding the memory customer base to automotive and wearables but also increasing the memory content per device. AI has also led the way to specialty memory chips such as graphics memory and very high-end memory.

All this is shortening memory cycles and increasing the aggregate profit opportunity for market players over the course of these memory cycles. The aggregate industry profitability in the 2015–2016 down cycle was 600 basis points higher than the 2012–2013 down cycle.

The improved profit opportunity helped Micron remain profitable for most of the 2015–2016 down cycle and report better-than-average performance in the 2017 up cycle. Micron is making an attempt to improve its profits further through technology transitions. Let’s take a look at that in the next part.

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