Due to its highly cyclical nature, the global memory market is currently witnessing an excess supply environment. However, despite the market volatility and tough macroeconomic conditions, Micron Technology (NASDAQ:MU), the only major US memory chip-maker, has been faring relatively well in a market where many manufacturers have had to sell or shut down operations.
Micron posted its Q4 2012 revenues on Thursday, September 27. While the company witnessed a 10% decline in net revenues, it posted a net loss of $243 million compared to $320 million in Q3 2012. Micron closed its fiscal 2012 with a 14% increase in NAND Flash revenue and a 12% decrease in revenue from DRAM products. Overall, the company posted a net loss of $1.03 billion on net sales of $8.2 billion for the fiscal year ending August 30, 2012.
While the overall memory industry is in correction due to its oversupply, the demand has yet to pick up to a level to stabilize the memory market. However, the declining inventory levels for all the three divisions – NAND, DRAM and NOR – reinforce our belief that the situation will improve 2013 onward.
Continued Weakness In The DRAM Market
Micron registered a 9% sequential decline in its revenue from DRAM products in the fourth quarter due to a 9% decrease in sales volume. Additionally, the persisting weakness in the PC market further deteriorated the DRAM market prices in the quarter, though the company’s net DRAM ASP was essentially flat due to mix improvements.
We estimate DRAM memory to contribute close to 60% to Micron’s valuation, making it the most valuable division in the company’s portfolio. The DRAM memory market has been caught in an oversupply glut, which combined with soft demand has led to a continuous decline in prices over the years. Though, with the consolidation in the industry, certain amount of supply has come offline, the market demand needs to pick up for the industry to get back on track.
With the upcoming Windows 8 launch, the growing popularity of ultra-thin notebooks, strong growth in server shipments and the proliferation of DRAM in mobile devices, we expect to see an improvement in demand 2013 onward. Additionally, Micron’s acquisition of Elpida, which it targets to complete by the first half of 2013, will significantly increase its market share and better equip the company to compete with Samsung (NASDAQ:SSNLF) and Hynix Semiconductors.
Improved NAND ASPs
The close to 40% increase in NAND sales volume that Micron witnessed in Q3 2012 was offset by a decline in its average selling price (ASP), leading to only a slight increase in revenue from the sale of NAND flash products. Though Micron registered a 11% and 12% sequential declines in NAND sales volume and revenues, it witnessed an improvement in NAND ASPs in Q4 2012.
Going forward, the company expects strong demand for SSDs and ultrathins in enterprise servers and storage as well as the proliferation of smartphones and tablets to drive NAND consumption.  As the industry witnesses strong NAND content growth across devices, we expect to see a revival in demand for NAND flash products.
In a recent interview, Micron’s CEO said he expects the rapid decline in NAND prices to ease in 2013 as the industry witnesses increasing market consolidation and significant production cuts.  We think the intense competition in the market will continue to put a downward pressure on prices.
We are in the process of updating our price estimate of $7.22 for Micron with the release of its Q4 2012 earnings.Notes:
- Micron Technology Management Discusses Q4 2012 Results – Earning Call Transcript, Seeking Alpha, September 27, 2013 [↩]
- Micron CEO sees higher NAND prices next year, Reuters, August 14, 2012 [↩]