Micron Enhances DRAM Offering Amid Growing Industry Consolidation

by Trefis Team
-34.94%
Downside
33.88
Market
22.04
Trefis
MU
Micron Technology
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Micron Technology (NASDAQ:MU) is one of the world’s leading providers of advanced semiconductor solutions, primarily dynamic random access memory (DRAM) for PCs and mobile devices, NAND Flash and NOR memory. Having registered a 81% increase in revenues in 2010, the company witnessed a slight decline for 2011, with the DRAM division seeing a 9% y-o-y decline primarily due to overcapacity.

The DRAM division contributes close to 40% to Micron’s overall revenue and, within DRAM, the DDR3 segment contributes over 20%. This month, the company added a new class of DDR3 devices aimed for high performance networking and discrete graphics to enhance its wide-ranging DDR3 portfolio. With the ongoing consolidation in DRAM market and the possible acquisition of Elpida, we believe that Micron could witness over 50% growth in revenues from its DRAM business.

See our complete analysis for Micron here

New Devices to Strengthen Micron’s Comprehensive DDR3 Portfolio

DDR3 are standardized, high-density, high-volume DRAM products that are sold primarily for use as main system memory in computers and servers. These products offer high speed and high bandwidth at relatively low costs compared to other DRAM products.

The new DDR3 devices introduced by Micron will feature industry-leading low power use while delivering speeds up to 2133 megatransfers per second (MT/s). [1] Having 2Gb and 4Gb capacities and clock speed of 1Ghz, they will be used in system-on-chip (SoC) devices and GPUs, further enhancing the company’s broad DDR3 product lineup.

AMD (NYSE:AMD) and LSI (NASDAQ:LSI) are among the latest technology and IP partners that will use DRAM in their products. Micron’s broad memory product lineup enables LSI to meet the needs of enterprise and cloud networking and storage customers, while the new DDR3 devices will enable AMD to build an aggressive portfolio for the performance-focused graphics market.

Micron believes that it is well-prepared to power the mainstream graphics and high-performance networking markets in the current year and beyond. It hopes to support the growing demand in these markets by leveraging its expertise with high-volume, cost-efficient DDR3 products to develop high-performance DDR3 devices.

Revival in Global DRAM Industry

The primary reason for the slowdown in the industry is persisting overcapacity. However, the exit of Elpida, which holds 17% market share, will be a welcome change for existing players, as this will likely shift the market from a state of persistent oversupply to a much needed stability in market dynamics.

Research firm IHS iSuppli predicts the global DRAM revenue to increase to $30.6 billion in 2012, which is close to our estimate of $33.4 billion. [2]  The acquisition of Elpida could significantly boost Micron’s market share, which we estimate will reach close to 13% by the end of our forecast period.

We have a price estimate of $7.40 for Micron, a premium of around 20% to the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

  • DRAM manufacturing is highly capital intensive, and as the technology nodes shrink, the costs of setting up a fabrication unit keep getting higher and higher. The business is such that there is no customer loyalty or brand recognition and hence it is tough for smaller players to survive. Many manufacturers have had to shut down or sell out due to economic downturn as well. This means that existing players would increase their market share.
  • Micron also has acquired stakes in several silicon wafer manufacturers, which would lead to an increase in its own production and increase its market share.
Notes:
  1. Micron Boosts DDR3 Offering With 2Gb and 4Gb, 1GHz/DDR3-2133, Delivering Power Efficiency and Speed for High-Performance Networking and Graphics Segments, Micron Press Release, June 12, 2012 []
  2. DRAM sales projected to grow 3% in 2012, EE Times, May 15, 2012 []
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