The global memory market seems stuck in an oversupply glut with demand picking up at a slower place amid soft economic conditions. The DRAM and NAND flash market is cyclical in nature and is currently in an oversupplied state. Micron Technology (NASDAQ:MU), a manufacturer and marketer of DRAM for PC and mobile devices and NAND flash for USB drive and mobile flash card, is one of the top three players in both these markets and, thus, is significantly impacted by the adverse trends in the memory market.
However, on the positive side, despite the declining prices and excess supply, the acquisition of Elpida is slated to push Micron ahead of Hynix Semiconductors to become the second largest player in the DRAM market after Samsung (NASDAQ:SSNLF). (Read: Micron Scoops Up Elpida To Bolster DRAM Business) Additionally, as per research firm iSuppli, both Micron and Hynix gained market share on the NAND flash industry leaders Samsung and Toshiba in the last quarter of 2011.  We currently estimate Micron to account for 14.3% of the NAND flash market and forecast the same to gradually increase by the end of our forecast period.
Earlier last month, Toshiba Corp., Japan’s leading chipmaker, cut its production of NAND flash memory chips by as high as 30% on account of industry oversupply. Considering that Apple (NASDAQ:AAPL) is one of Toshiba’s biggest customers, we expect the company to build some inventory for the upcoming iPhone 5 launch. Hence, the drastic cutback in production is reminiscent of the fact that Toshiba is skeptical of a drastic increase in demand in the latter half of 2012.
The exponential rise in the use of smartphones and tablets has led to a significant ramp-up in NAND production capacity, which further puts a downward pressure on prices. We expect the growing demand for smartphones and tablets to continue rising, in turn leading to an increase in NAND flash sales in the future. However, we feel that the prices will continue to decline for the rest of our review period.
We believe that Micron’s stock price is highly sensitive to a fluctuation in NAND average selling price compared to worldwide NAND flash sales. Currently, we estimate a 15% decline in average selling price per GB in 2012. However, if the prices continue to follow the historical decline rate, it could impact our price estimate. You can increase/decrease our forecast for NAND flash average selling price below to see to see how it will impact the company valuation.
We have a price estimate of $7.50 for Micron, which is at a premium of around 20% to the current market price.Notes:
- Micron, Hynix gain share in NAND Flash memory business, Solid State Technology, April, 30, 2012 [↩]