Improving Business Environment, Price Dynamics Will Continue To Drive Growth For Micron

by Trefis Team
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Micron Technology
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Memory chip manufacturer, Micron (NYSE:MU), reported its Q2’17 earnings last week. Strong demand and limited industry supply for both DRAM and NAND, coupled with improving prices and significant progress on its cost cutting plans helped Micron report a stellar Q2’17. While Micron’s revenue came in at the top end of its guided range, the company managed to exceed its projections for gross margin, operating income, and earnings per share (EPS). The first two quarters mark a solid start for Micron’s fiscal 2017 (the company reported a profit in Q1, after three consecutive quarters of losses). A favorable  business environment, sustained positive pricing environment, Micron’s wide array of product mix, and its cost improvement initiative have made investors hopeful of the positive momentum continuing for the rest of the year.

Quick Snapshot of Q2’17 Earnings

MU

  • DRAM revenue was up 22% q-o-q, driven by a 1% increase in bit shipments (higher shipments in automotive as well as consumer and connected home applications) and a 21% increase in ASPs.
  • NAND revenue increased 11% q-o-q, reflecting an 18% increase in bit shipments and a 6% decline in ASPs.

Improvement In Industry Price Dynamics

In the last two quarters, Micron has seen a significant increase in DRAM prices, particularly in PC DRAM. Increases over trough pricing for PC DRAM far exceeded other segments (mobile, cloud, and enterprise), which typically react more slowly. Improvement in pricing combined with solid progress in Micron’s cost cutting initiative led to a significant increase in DRAM margins.

NAND ASPs were down slightly due to a higher density product mix. However, since the company managed to capitalize on an increasing percentage of low-cost 3D TLC NAND by more fully participating in the SSD market, NAND margins did show a substantial improvement over the previous quarter. Micron claims to be seeing like-for-like price increases across nearly all segments in NAND.

Micron anticipates the demand growth in the next few quarters to outpace supply and thus the pricing environment is likely to improve further. It should be noted that contract prices that Micron has seen are still below spot prices (because the contracts are usually pre-negotiated) and thus contract prices take a while to catch up to the trend in spot prices.

Cloud and Enterprise Business & HDD Replacement Cycle To Drive Future Growth

Two trends that drove earnings in Q2’17 were: significant increases in the cloud and enterprise businesses, both in bits shipped and value of products going to those segments; and, an ongoing preference for SSDs over HDDs in storage platforms.

“Customer focus on larger capacity and tailored storage solutions led to a dramatic growth in our enterprise and cloud segments which were our fastest-growing part of our SSD portfolio. The trend toward tailored solution drives greater opportunities for Micron to engage end customers on future IT investment planning.”

Continued  shift to cost-effective 3D NAND TLC products and increased traction for the SSD portfolio across the OEM cloud and enterprise markets will continue to drive growth. Wins with OEM customers enabled a record number of SSD shipments in Q2’17.

Micron is driving deployment of 1X DRAM with meaningful output expected by the end of the fiscal year. The company will be shipping 3D XPoint memory later in 2017. These innovative solutions offer unique value to enterprise customers and will be an important contributor to Micron’s future success.

See our complete analysis for Micron here

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