VALUATION HIGHLIGHTS

1. Core DRAM constitutes 72% of the Trefis price estimate for Micron Technology's stock.
2. NAND flash constitutes 28% of the Trefis price estimate for Micron Technology's stock.

WHAT HAS CHANGED?

Latest Earnings: Q2 FY'2024

Micron posted a better-than-expected set of Q2 FY'24 results driven by a rebound in pricing for memory chips and surging uptake for high-bandwidth memory used in AI applications. While revenue came in at $5.8 billion, rising by 58% year-over-year, earnings stood at $0.42 per share.

Note: Micron's FY'23 ended on August 31, 2023. Q2 FY'24 ended on February 29, 2024

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Micron's value that present opportunities for upside or downside to the current Trefis price estimate for Micron:

Core DRAM

• Core DRAM Revenues: The price of DRAM saw a solid increase over the last three years, driven by demand from the cloud, enterprise, mobile, and graphics markets, and stronger sales to higher-value markets. The price increase, coupled with higher bit sales helped Micron boost revenue from $7 billion in FY'16 to about $21 billion in FY'18. However, DRAM revenue dropped to $14.51 billion in FY '20, as the market is still coming out of a state of oversupply and recovering from the pandemic, before rising to $22 billion in FY '22. We expect revenues to rise to almost $30 billion by 2029. Even a slight variation from our estimate can lead to a significant upside/ downside in our price estimate for Micron, as DRAM accounts for about two-thirds of the company's revenue.
  

  BUSINESS SUMMARY

  Micron Technology, Inc. is a manufacturer and marketer of semiconductor devices, primarily dynamic random access memory (DRAM) for PCs and mobile devices, NAND Flash, and NOR Flash memory. In addition, Micron also develops other memory technologies, packaging solutions, and semiconductor systems for use in computing, consumer networking, and embedded and mobile products.
  • DRAM memory is the memory inside a PC/laptop computer. All computing devices require memory for the purpose of execution of programs. Micron has several different technologies of DRAM on the market viz. SDRAM, DDR, DDR2, DDR3 for use in the PC market. Mobile DRAM(mDRAM) products are specialty DRAM memory devices designed for applications that demand minimal power consumption such as smartphones, digital cameras, and other handheld electronic devices.
  
  
  • NAND flash is the memory that is present in a typical USB drive or a mobile flash card. NAND is ideal for mass-storage devices due to its fast erase and write times, high density, and low cost per bit relative to other solid-state memory.
  
  
  • NOR flash is the memory embedded with the device. The base memory on a mobile phone or a digital camera is typically NOR flash. NOR is ideal for storing program code in wireless and embedded applications. The software/firmware on a mobile phone or digital camera is usually stored on NOR flash memory.
  
  

  SOURCES OF VALUE

  NAND Flash

  We estimate NAND Flash to account for approximately 39% of Micron's value. NAND Flash is an important source of value for Micron due to the following reasons:
  
  • SSDs are a key growth driver for the NAND industry: Historically they have turned out to be expensive for computing usage due to their high cost per GB of storage. However, in the long term, the mainstream PC SSD will have the most influence on the NAND market. IT managers have found that they can greatly reduce their IT spending while increasing throughput by replacing enterprise HDDs with SSDs.
  
  

  Core DRAM

  Core DRAM currently constitutes two-thirds of Microns' revenue and a similar proportion of its valuation, as per our estimate. We believe that DRAM will continue to be a key source of value for Micron due to the following reasons:
  
  • Highly integrated DRAM manufacturing process: Micron has an integrated DRAM manufacturing process and owns the wafer manufacturing facilities which help it lower its cost base. In addition, it has supply agreements with Inotera which enabled it to increase the production of DRAM products significantly in the past.
  • Consolidating DRAM Market: While the global DRAM market had numerous players a few years back, it is now essentially an oligopoly. Samsung Electronics, SK Hynix, and Micron are the top three DRAM players, accounting for more than 90% of the market.
  
  

  KEY TRENDS

  The DRAM and NAND Flash business is cyclical in nature with each cycle comprising four phases:
  1. Increased demand, high profitability: The market is in undersupply with strong pricing and hence, high profitability. Profits are spent on capacity addition, with an increase in supply after a period of 8-12 months.
  2. Oversupply and losses: The market is marked by oversupply and falling ASPs. The focus is on driving cost efficiencies.
  3. Continued oversupply, losses run deeper: Demand is pushed a little higher due to price elasticity. ASPs continue to fall and approach cash cost levels. Capex is delayed and fabrication units are run at a lower capacity.
  4. Supply correction, return to profitability: Reduced supply leads to correction and demand sufficiency. ASPs see a correction or possible rebound while costs continue to decline. Capex spending starts again.