Micron and DRAM
Micron Technology (MU) is the third-largest manufacturer of DRAM (dynamic random access memory) in the world and the only DRAM manufacturer in the United States. PCs, mobile, servers, and graphics cards use DRAM to build insights from the data collected. Micron earns more than 60% of its revenues from DRAM.
At the Citi 2017 Global Technology Conference, Micron’s chief financial officer, Ernie Maddock, stated that DRAM demand is largely driven by mobile and server. Mobile DRAM demand was weak in fiscal 3Q17 due to softness in the Chinese (FXI) market. However, the demand is within its estimated growth range.
Maddock hinted that the demand in the server market is particularly strong due to better-than-expected growth in PC volumes. He stated that the strong demand in server DRAM comes as enterprises are using more data, which they collected over the years to form business insights. On the other hand, demand for specialty DRAM used for autonomous driving and machine-to-machine communication is growing steadily.
Memory market customers such as Apple (AAPL) and Cisco Systems (CSCO), in their calendar 2Q17 earnings, stated that high memory prices have lowered their profits. They mostly purchase memory through contracts to lock in prices.
In 3Q17, DRAM contract prices were flat in June and July 2017 and grew at the end of August. The DRAM pricing environment is likely to remain favorable though 2018.
DRAM prices are likely to increase through 2018 as other memory makers are spending their capital on technology transition instead of adding new capacity. Micron has started generating strong yields from 1X node and plans to transition to 1Y node over the next 12 months. It is slightly behind Samsung (SSNLF) and SK Hynix, which are already in the midst of the 1X and 1Y processes. Micron plans to close this technology gap by 2019.
Micron believes that the capacity generated through technology transition would increase the industry’s DRAM supply 20% annually between 2016 and 2020. DRAM demand would grow between 20% and 25%. This slight undersupply would help memory makers maintain high DRAM prices.
Next, we will look at Micron’s NAND (negative AND) business.