Demand is slowing in the traditional PC, mobile, and data center memory end markets. Micron Technology (MU) has been diversifying its portfolio to include the emerging automotive, industrial, and IoT (Internet of Things) markets.
Each of these products needs specialized memory, shifting memory chips from commodities to specialized products. Moreover, these end markets have long product life cycles, which should generate higher and more stable earnings.
Micron is a leader in the automotive and industrial memory market. It developed the industry’s first auto-grade graphics double data rate DRAM (dynamic random-access memory) for autonomous vehicles. It also introduced the industry’s first 1 TB triple-level cell nonvolatile memory automotive solid-state drive in the first quarter of fiscal 2019.
Micron has a strong design win pipeline for automotive products, which translates to billions of dollars in potential long-term revenue. This structural change in the memory market and in Micron itself could reduce Micron’s cyclicality and stabilize its revenue.
As we can see in the graph above, Micron’s EBU (Embedded Business Unit) revenue has been flat or up sequentially over the last two years. Its EBU revenue rose 1% sequentially to $933 million in the first quarter of fiscal 2019 as its automotive and industrial revenue reached a new record.
Analog chip maker Texas Instruments (TXN), graphics card maker NVIDIA (NVDA), and visual processor maker Intel’s (INTC) Mobileye have all reported strong sequential growth in the automotive market despite weakness in the overall demand environment. The demand in automotive was driven by increasing demand for in-vehicle infotainment and advanced driver assistance systems. On its 2018 Investor Day, Micron estimated that the automotive market would grow 2.4x between 2017 and 2021.
The EBU currently accounts for only 11.8% of Micron’s revenue, and because of this, it’s not able to influence the company’s overall earnings. The company is increasing its exposure to these long-life-cycle products by partnering with various automakers and industries. We expect the EBU’s revenue to remain flat in the second quarter of fiscal 2019.
Next, we’ll see what analysts think about Micron’s future growth prospects.