Is Micron’s Operational Efficiency Getting Better Amid Declining Prices In The Memory Market?

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MU: Micron Technology logo
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Micron Technology

Companies such as Micron (NYSE:MU) have experienced diminished revenue growth in recent years, due to significant decline in both NAND and DRAM ASPs, which resulted from an oversupply situation prevailing in the memory market. Going forward, we expect both DRAM and NAND prices per Gb to continue declining for the rest of our review period, albeit at a lower rate. The primary reason for our forecast is an intense competition (despite industry consolidation) in the industry and declining PC sales. In the wake of this trend, which is beyond the company’s  control, it is imperative to adjust expenses so as to lessen the impact of falling revenues on net cash profits. To this end, revenue generated per dollar spent on (operating expenses) can be regarded as a key metric of how well Micron has leveraged its operating expenses.

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From $25.13 generated in revenues per dollar of SG&A in 2014, the figure came down to $23.11 in 2015, as Micron’s revenues continued to suffer from declining memory prices. Looking at the near future, we expect the figure to improve post 2016, primarily due to an expected increase in the company’s top-line by approximately 33% over the next three years. We believe that the company’s market share in both core DRAM and NAND flash market will improve going ahead. Furthermore, Micron’s market share improvement is likely to offset the negative impact of revenue decline resulting from the fall in NAND and DRAM ASPs.

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