A Look At Micron’s Revenue Segments To Understand How It Makes Money

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Micron Technology

Micron (NASDAQ: MU) derives its revenue from two primary divisions (1) Core DRAM, and (2) NAND Flash Memory, which are expected to contribute roughly $15.8 billion (66.5%) and $6.7 billion (28%) respectively, to its Total Revenue estimate of $23.8 billion for FY ’19. Revenue from NOR and 3-D XPoint Products is expected to make up the remaining $1.3 billion (5.5%).

A] Micron’s Business Model

  1. What Need Does It Serve?
    • Providing faster memory and data transfer speeds: Micron manufactures memory devices, primarily dynamic random access memory (DRAM), for PCs and mobile devices, and flash memory (both NAND and NOR) for use in storage applications in mobile phones, SSDs, and related products.
    • … while keeping cost and power consumption in check: A lot of Micron’s memory devices are used in smartphones and USB drives, that are relatively low power devices, and hence require the memory chips to not be very power-consuming. Micron’s devices are able to achieve low power consumption, and are also pocket-friendly.
  2. Has Three Operating Segments-
    • Core DRAM: The DRAM division sells Dynamic Random Access Memory (DRAM) for use in PCs, notebooks and servers. DRAM is sold to OEMs (Original Equipment Manufacturers) who manufacture these computing devices.
    • NAND Flash: This division sells NAND flash memory primarily for use in Solid state Drives (SSDs), USB devices, and digital cameras. NAND memory is used in mass-storage devices due to its low cost and fast transfer rates.
    • Other (NOR and 3-D XPoint): NOR flash is the base memory on a mobile phone or tablet and is ideal for storing program code in wireless and embedded devices.
  3. What are the alternatives?
    • Memory Semiconductor Industry: The company faces intense competition from Samsung and SK Hynix in both DRAM and NAND Flash. Toshiba and SanDisk are other major competitors in DRAM and NAND Flash respectively.
  4. What is the basis of competition?
    • As DRAM and NAND are both commodities, customers care most about the price or the cost per bit.
    • Besides this, competition is also based on write and erase times, memory density, and power consumption.

You can view the Trefis interactive dashboard – Micron Revenue: How does Micron make money? – You can modify our key drivers to arrive at your own estimates for the company’s revenue.

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Micron’s Total Revenue rose 145% from $12.4 billion in 2016 to around $30.4 billion in 2018, but we expect it to drop to about $25.5 billion by 2020, on the back of an ongoing supply glut in the DRAM and NAND markets

 

Drop in Revenue of around $5 billion is expected over the next two years, with a drop of around $3.3 billion from the DRAM business alone and the remaining $1.7 billion from NAND flash

  1. The company has seen an exceptional growth in revenue of about $18 billion, from $12.4 billion in 2016, to $30.4 billion in 2018.
  2. This has largely been due to outstanding growth from the DRAM segment, which has added $14 billion over this period, due to demand growth and relatively constrained supply.
  3. However, a sharp drop in both DRAM and NAND prices is expected in 2019, which should cause an almost 22% drop in total revenue to $23.76 billion for FY ’19.
  4. This is due to cooling demand from end markets, as well as growing supply and inventory levels in the DRAM market.
  5. We expect things to get slightly better by 2020, and revenue is expected to rise to around $25.5 billion by FY ’20.

 

(A) Revenue from Core DRAM to decrease by close to 16% (by about $3.3 billion) in the next two years, with its share of Total Revenue expected to remain at about 70% by 2020

  1. A steady growth in DRAM demand and a rise in selling prices, led to an almost 200% rise in DRAM revenue between 2016 and 2018.
  2. However, the memory market is highly cyclical in nature with extreme demand and supply scenarios.
  3. Average DRAM prices are expected to fall by close to 40% in 2019, leading to a drop in revenue to about $15.8 billion.
  4. However, things could improve in 2020, as over the last few years the DRAM market has consolidated and there are only three major players, including Micron (the other 2 being Samsung and SK Hynix). This could mean less occurrences of wild price fluctuations.

(B) Revenue from NAND flash to drop by about 22% (close to $1.7 billion) in the next two years, forming a little over 24% of the Total Revenue.

  1. Revenue from this segment has seen steady growth, from $4.14 billion in 2016 to $7.84 billion in 2018, even on the back of gradually falling NAND prices, as there has been a rise in sales volumes.
  2. However, we expect NAND flash revenue to drop to $6.16 billion by 2020, as prices are set to fall further, and demand has reduced.

(C) Revenue from the NOR flash and 3-D XPoint division to remain largely flat over the next two years, forming about 5.5% of the Total Revenue for 2020

  1. Revenue from this division has also witnessed steady growth of about 25% from 2016 to 2018.
  2. We expect revenue from this division to remain flat, through 2020.

As seen in the Micron Valuation by Trefis, we have a price estimate of $38 per share for MU’s stock.

 

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