Why Have Micron’s Revenues And Margins Declined In 2016?

Micron (NYSE:MU) has experienced diminished revenue growth in recent years. In the table below, we can note how the company’s revenues and margins have declined over the last 2 years.

In this analysis, we discuss the key reasons underlying the decline in the key metrics for Micron.

A) Significant decline in memory products ASP: Memory products, both NAND and DRAM memory, have experienced significant declines in their average selling prices. This can be attributed to an oversupply situation in the memory market. Intense competition in the industry (despite consolidation) and a weak demand for memory products due to declining PC shipments are the factors behind the oversupply situation in the memory market. In the table below, we note the percentage decline in NAND and DRAM ASPs.

B) Weakness in the PC sector: Desktop PCs, notebooks, and workstations contributed about 20% of the total revenues for Micron in 2016. Thus, an ongoing weakness in the PC market has negatively impacted Micron’s gigabit sales volumes. In addition, weakness in the PC sector is an important factor resulting in the decline in the average selling prices of the memory products. Global PC shipments continued to decline for the eighth consecutive quarter in Q3’16. According to research firm Gartner, one primary reason for the decline in the PC shipments is the fact that the adoption of PCs in new households is declining, especially in the emerging markets, where smartphones are a bigger priority.

C) Equipment Downtime In connection with transitions to smaller nodes: According to Micron, the Gigabit production and cost reductions in 2016 were constrained by equipment downtime. The equipment downtime, in turn, was as a result of the transition from 25nm to 20nm-based products and a shift to a higher mix of DDR4 products in the DRAM segment and the transition to 3D NAND in NAND Flash memory.