Micron Technology (NASDAQ:MU) is the only major US NAND memory chip-maker remaining with the global memory market increasingly dominated by Korean manufacturers such as Samsung (NASDAQ:SSNLF) and Toshiba. NAND flash memory is widely used in mobile devices, and the robust growth in sales of smartphones and tablets is expected to drive up the use of NAND flash memory for these devices. However, reacting to the rapid rise in sales of Apple’s iPad, iPhone and other devices in recent years, many chip manufactures have ramped up their production capacity, which has led to a supply glut in NAND memory market. The excess supply coupled with the current macroeconomic headwinds have further driven down NAND prices, which have been continuously declining on account of intense competition among chipmakers.
We estimate NAND flash memory to contribute close to 26% to our current price estimate of $7.22 for Micron and forecast the average selling price for NAND Flash per Gigabit to continue declining at a rapid pace for the rest of our forecast period. In a recent interview, Micron’s CEO said that he expects the rapid decline in NAND prices to ease down in 2013 as the industry witnesses increasing market consolidation and significant production cuts in the current year. 
Production Cut for NAND Flash Memory
Earlier last month, Toshiba Corp., Japan’s leading chipmaker which accounts for close to 30% of the global NAND flash market, cut its production of flash memory chips by as high as 30% on account of industry oversupply. Though Micron and Hynix continue to maintain healthy inventory levels, we think the drastic cut in production by some of the dominant players can help close down the demand-supply gap in the market. 
Additionally, the current scenario in the memory industry has forced many small players to shut down, leading to a much-needed consolidation in the market.
Growing Adoption of Mobile Devices to Drive NAND Demand
With the rapid rise in global shipments for mobile devices, smartphones and tablets are slated to be the key drivers for growth in the semiconductor industry. We are witnessing strong NAND content growth across all devices, with the average content in USB flash drives expected to grow at a rate of almost 50%, which is close to the historical growth seen in these segments.
According to iSuppli, tablet consumption of NAND flash is expected to reach as high as 12.3 billion GB by 2014.
We believe that with most chipmakers cutting down production, combined with a revival in the global economy which will increase demand for consumer products, we can expect to see a much-needed correction in market dynamics to a certain extent next year. If the average NAND flash price declines to a lesser extent than our estimate, there could be a significant upside to our price estimate.
We have a Trefis price estimate of $7.22 for Micron, which is at a premium of around 10% to the current market price.Notes:
- Micron CEO sees higher NAND prices next year, Reuters, August 14, 2012 [↩]
- Micron, Hynix gain share in NAND Flash memory business, Solid State Technology, April, 30, 2012 [↩]