DRAM (dynamic random-access memory) is a key component required for data processing. DRAM stores the data required by a computer processor to perform its function. The amount of DRAM content determines the performance of the device. This makes DRAM demand inelastic, as device makers have to buy DRAM if they want to achieve their desired performance.
The adoption of AI (artificial intelligence) picked up in 2017, driving DRAM demand in cloud, data center, and mobile applications. According to DRAMeXchange estimates, the average DRAM content per mobile device rose 33.4% to 3.2 GB (gigabyte) in 2017. This average is likely to increase continuously as marquee Smartphone companies increase their memory content to support more capabilities, such as AR/VR (augmented/virtual reality) and better cameras.
With the advent of AI and IoT (Internet of Things), the use of DRAM is growing beyond the PC (personal computer) and mobile spaces and into the server, cloud, and automotive spaces. This diversification could drive DRAM demand in the long term.
Micron (MU) expects DRAM industry demand to grow in the range of 20%–25% annually over the next few years, with demand for server and automotive DRAM growing faster than demand in the overall industry. All IoT devices are connected to the server. The greater the number of devices, the more need there is for server DRAM.
In the automotive space, NVIDIA (NVDA) will be rolling out its DRIVE PX 2 AI automotive platform, which features Micron’s memory, in some Toyota (TM) and Tesla (TSLA) models in 2018. Even Google’s (GOOG) Waymo will be rolling out robo-taxis in 2018.
While DRAM demand remains hot, things could remain moderate on the supply side. Micron expects DRAM industry supply to grow only 20% in 2018, half of which could come from technology transition and the other half of which could come from new capacity additions.
Micron isn’t adding new DRAM capacity. Samsung (SSNLF) is rumored to be adding DRAM capacity, and SK Hynix plans to add new DRAM capacity. Together, the three command over 95% of the DRAM market. This oligopoly in the DRAM market gives suppliers more pricing power and enables them to maintain supply discipline, whereby they ensure the supply is adequate but not excessive.
At Credit Suisse’s 21st Annual Technology, Media & Telecom Conference, Micron’s CEO, Sanjay Mehrotra, stated that the DRAM industry has such large installed capacities that the addition of any small capacity wouldn’t have a significant impact on supply. New technology nodes are increasingly complex, which makes transitions time consuming and costly, thereby moderating supply growth.
Next, we’ll see how the DRAM market environment could affect DRAM prices and Micron’s earnings.