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Investment Overview for Micron Technology (NYSE:MU)
Below are key drivers of Micron's value that present opportunities for upside or downside to the current Trefis price estimate for Micron:
- Core DRAM ASP: We forecast DRAM ASP for Micron to decline from $1.07 per gigabit in 2012 to $0.15 per gigabit by the end of our forecast period. Even a slight variation from our estimate can lead to a significant upside/ downside in our price estimate for Micron. One of the reasons for the slowdown in decline could be the ongoing consolidation in the industry as well as renewed demand from new technology and consumer devices. On the other hand, a continuous decline in PC shipments and/or higher competition in the DRAM market can accelerate the rate of DRAM price decline.
- Core DRAM Market share: We forecast Micron's market share in core DRAM to increase from 14.9% in 2012 to 17% by the end of our forecast period. However, there can be a 10% upside in our price estimate if the market share increases to 20%. On the other hand, if Micron's market share reduces to 10%, there will be a 20% downside in our price estimate. The reasons for a higher market share can be the acquisition of a competitor or the introduction of more cost competitive products. If the market share increases to only 14%, then our price estimate will decline by around 10%. A delay in introducing new technologies by Micron could give its competitors and an edge in innovation and pricing, leading to a decline in Micron's market share.
- NAND flash ASP: We forecast Micron's NAND ASP to decline from $0.83 per gigabyte in 2012 to $0.13 per gigabyte by the end of our forecast period. Even a marginal variation from our estimate will lead to a significant upside/ downside in our valuation for Micron.
Increasing consolidation in the memory market and renewed demand from new technology and consumer devices can stabilize the rate of decline in NAND prices. On the other hand, a further decline in PC shipments and/or increase in competition can further put a downward pressure on NAND prices.
- NAND flash market share: We forecast Micron's market share in NAND flash to increase from 15.46% in 2012 to over 16% by the end of our forecast period. However, there would be a 10% upside if the market share increases to 18%. Similarly, if Micron's market share declines to 12%, there will be a 12% downside in our price estimate. The reasons for increase in market share can be the acquisition of a competitor or the introduction of more cost competitive products. On the other hand, any delay in introducing new technologies by Micron would give its competitors an edge in innovation and pricing, leading to a possible decline in its market share.
Micron Technology, Inc. is a manufacturer and marketer of semiconductor devices, primarily dynamic random access memory (DRAM) for PCs and mobile devices, NAND Flash and NOR Flash memory. In addition, Micron also develops other memory technologies, packaging solutions and semiconductor systems for use in computing, consumer networking and embedded and mobile products. The firm also manufactures semiconductor components for CMOS image sensors and other semiconductor products. Micron's memory products are offered under the Micron, Lexar, Crucial and SpecTek brand names and private labels. Numonyx products are offered under the Numonyx brand name.
- DRAM memory is the memory inside a PC/laptop computer. All computing devices require memory for the purpose of execution of programs. Micron has several different technologies of DRAM on the market viz. SDRAM, DDR, DDR2, DDR3 for use in PC market. Mobile DRAM(mDRAM) products are specialty DRAM memory devices designed for applications that demand minimal power consumption, such as personal digital assistants (PDAs), smart phones, GPS devices, digital still cameras and other handheld electronic devices.
- NAND flash is the memory which is present in a typical USB drive or a mobile flash card. NAND is ideal for mass-storage devices due to its fast erase and write times, high density, and low cost per bit relative to other solid-state memory.
- NOR flash is the memory embedded with the device. The base memory on a mobile phone or a digital camera is typically NOR flash. NOR is ideal for storing program code in wireless and embedded applications. The software/firmware on a mobile phone or digital camera is usually stored on NOR flash memory.
We believe that NAND Flash Memory will continue to be a key source of value for Micron due to the following reasons:
- Consumption of NAND flash is on the rise: Consumers are buying tablets and smartphones in increasing numbers, driving up the use of NAND flash memory for such devices. According to IHS iSuppli, the NAND flash growth from tablets alone would be 12.3 billion GB in 2014, up from 476.8 million GB in 2010.
- Micron can out-innovate Korean manufacturers: Micron, in partnership with Intel, had announced a 20nm 128GB capacity NAND flash chip which is double the size of currently manufactured NAND memory chips. Micron started the production of this chip in 2012, ahead of other Korean manufacturers. The move could give it a competitive edge in the market.
Core DRAM constitutes around 40% of Microns' revenue. We believe that DRAM will continue to be a key source of value for Micron due to the following reasons:
- Highly integrated DRAM manufacturing process: Micron has integrated DRAM manufacturing process and owns the wafer manufacturing facilities which helps it lower its cost base. In addition, it has supply agreements with Inotera which enabled it to increase the production of DRAM products significantly in the past. DRAM supply from Inotera increased significantly in 2011 due to Inotera's transition of its manufacturing from trench DRAM process technology to Micron's stack DRAM technology. Micron recently signed a new agreement with Inotera where it will purchase 100% of its production, as opposed to 50% as per the earlier agreement.
- Consolidating DRAM Market: DRAM industry has seen a lot of consolidation in the last few years, with many smaller players being taken over by bigger players. Slowdown in demand had led to a huge demand-supply gap in the market which resulted in mounting losses for many DRAM players. However, Micron has been holding its ground well so far an has even witnessed a marginal increase in its market share. The company is expecting to close it acquisition of Elpida Memory by mid-2013, which can make it the second largest DRAM manufacturer in the world after market leader Samsung.
Declining prices and oversupply
The DRAM and NAND Flash business is cyclical in nature with each cycle comprising of four phases:
- Increased demand, high profitability:
Market is in undersupply with strong pricing and hence, high profitability. Profits are spent on capacity addition, with increase in supply after a period of 8-12 months.
- Oversupply and losses:
Market is marked by oversupply and falling ASPs. Focus is on driving cost efficiencies.
- Continued oversupply, losses run deeper:
Demand is pushed a little higher due to price elasticity. ASPs continue to fall and approach cash cost levels. Capex is delayed and fabrication units are run at lower capacity.
- Supply correction, return to profitability:
Reduced supply leads to correction and demand sufficiency. ASPs see correction or possible rebound while costs continue to decline. Capex spending starts again.
The market, is currently in the continued oversupply and losses phase. However, we believe that the market has entered the correction and initial profitability phase this year.
Tablets and mobile devices driving demand for NAND and mobile DRAM
- Consumers are buying tablets and smartphones in increasing numbers, driving up the use of NAND flash memory for such devices. According to IHS iSuppli, the NAND flash growth from tablets alone would be 12.3 billion GB in 2014, up from 476.8 million GB in 2010.
- The market for mobile dynamic random access memory (DRAM) will see rapid growth during our review period, as compared to PC DRAM sales, which is expected to slow down going forward. Mobile DRAM shipments are predicted to reach 20.5 billion Gb in 2015, up 12x from 2010.
- Mobile DRAM has been the most attractive product segment for DRAM vendors. Mobile DRAM production is based on known demand levels, pricing is mostly driven by cost reductions and not by fluctuations of supply and demand, more typical of commodity DRAM.
This has attracted nearly every DRAM maker to come out with its own mobile DRAM product.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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