How Micron Is Looking To Beat The NAND Downturn
The memory markets have had a relatively mixed year. While the DRAM market has performed reasonably well, the NAND market is seeing significant headwinds as major vendors accelerated their transition from planar NAND to the more efficient 64-layer 3D NAND, which significantly increases bit density and available capacity in the industry, hurting market pricing. Over the last quarter, Micron (NYSE:MU), one of the largest NAND producers, indicated that its overall NAND average selling prices (ASPs) decreased in the mid-teens percentage range while estimating that about 75% of the industry-wide transition to 3D NAND is now complete. According to Gartner, average selling prices for NAND memory are expected to fall by about 24% in CY 2018 and 23% in CY 2019. In this note, we take a look at what Micron is doing to weather the downturn in the NAND markets.
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Improving Product Mix
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Micron has been focusing on improving its product mix while driving down costs. Over Q4’18, the company delivered a sequential gross margin expansion despite the fact that pricing declined in the industry, with trade NAND gross margins standing at 48%, up 50 bps from the prior quarter. Micron is seeing a rising mix of high-value products including SSDs, multichip packages (which include NAND and DRAM in a single chip) as well as managed NAND solutions (NAND chips packaged with memory management solutions). Over 2018, the company increased its mix of high-value solutions to a little over 60% of revenues, up from just about 40% in the year-ago period. The company expects 80% of its NAND sales to come from managed solutions.
Doubling Down On Technology Transition
While the industry has largely been transitioning from 2D NAND to 3D NAND with the 64-layer technology, Micron intends to introduce its 96-layer NAND into production this calendar year while ramping up production over 2019, in a move that should provide it with significant cost reductions. While rival Samsung has already started mass production of 96 layer 3D NAND, it will crucial for Micron to move down the cost curve at a time of increasing supply, as it would give the company an advantage over other vendors.
The company also expects to outgrow the industry in terms of bits, posting 35% to 40% bit growth in 2019. Additionally, the company has also indicated that it expects to see higher demand for NAND due to elasticity, resulting in higher SSD adoption and increasing average capacities in markets such as smartphones.
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