How Micron Is Looking To Manage The DRAM Downturn

by Trefis Team
Micron Technology
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Micron (NYSE:MU) published its Q2 FY’19 results on Wednesday, posting stronger than expected earnings in an oversupplied memory market.  While the company’s quarterly revenues declined by 20% year-over-year to $5.84 billion, net income fell by about 50% to $1.62 billion. In this note, based on Trefis analysis, we provide some takeaways from the performance of the DRAM business, which is the biggest driver of the company’s revenues.

Our interactive dashboard analysis on What’s The Outlook For Micron In Q3 FY’19? details Micron’s guidance over the next quarter. You can modify any of our key drivers and forecasts to gauge the impact that changes would have on the company’s results.  In addition, here is more Information Technology data.

DRAM Revenues Trend Lower On Falling Prices

Micron has indicated that the per-bit prices of DRAM declined in the low-20% range sequentially, with its overall DRAM revenues declining to around $3.74 billion, down from $5.2 billion in the same period last year. Overall gross margins also declined to about 50% in Q2 FY’19, down from 58% in the year-ago period. There have been multiple factors impacting the DRAM market including higher levels of inventory with customers, weakening server demand at enterprise OEM customers, and a significant shortage of Intel CPUs, which has been hurting demand for PC DRAM. The company also indicated that macroeconomic uncertainty could also be making some customers more circumspect about their buying. Moreover, unlike NAND memory, which sees some price elasticity of demand, with demand rising in response to falling prices, demand for DRAM chips are relatively inelastic, meaning that the price declines can be sharper.

Micron Is Scaling Back On CapEx, Wafer Starts

The near-term outlook for the market remains mixed. While Micron expects DRAM bit shipments to begin increasing from Q3 FY’19, it expects industry demand growth to be outpaced by supply expansion. This could mean that prices will continue to trend lower.  Research firm DRAMExchange expects PC DRAM prices to drop nearly 20% sequentially in the second quarter of CY’19, noting that the shortage of Intel CPUs could last till the end of Q3 CY’19, hurting PC manufacturing, and thereby demand for DRAM. Server DRAM prices are projected to fall by between 15% to 20% sequentially. The company, for its part, will reduce its planned capital expenditures for this year to $9 billion versus a prior projection of between $9 billion to $9.5 billion, while also idling about 5% of DRAM and NAND wafer starts, potentially allowing it to bring its production closer to the industry’s bit demand growth levels. The company is also pushing forward with its technology transitions to more advanced process nodes. It noted that it expects to increase conversion of its 1y-nm technology over the second half of FY’19 while sampling products with its 1z-nm from next year.


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