Memory chipmaker Micron (MU, Financial) is set to announce its second-quarter 2014 results on April 3. After having a dismal 2012 led by industry oversupply and stiff competition, Micron successfully returned to profitability during 2013 backed by improved memory pricing and growing demand from non-computing market (e.g. external storage, camera). Micron maintained the trend by reporting a stellar first quarter 2014. Let’s dive deeper to find how the chipmaker is positioned for the upcoming quarter.
NAND Business Could Do Well Despite Soft Pricing
In the first quarter, Micron’s NAND Flash revenue grew 8% sequentially mainly due to higher demand. This was partially offset by the excess supply of NAND, which made the company to lower its prices. Supply saw massive growth as Micron not only increased the production capacity for NAND, but shifted the CRAM capacity to ramp up NAND production as well. The company was triggered to boost NAND production as wireless consumer preferences were shifting in favor of NAND Flash from NOR Flash. As a result, the company now expects its overall NAND supply to outpace the industry supply growth in 2014, which will continue to affect pricing.
But there are positives too. Growing demand for solid state drives (SSDs) is of great advantage to Micron. Last quarter, proceeds from SSD customers made up roughly 48% of Micron’s NAND revenue. According to DRAMeXchange, SSDs could make up for 25% of overall NAND chip shipments in 2014, up from mere 13% last year.
The rising demand and usage of smartphones and tablets that feature the SSDs are expected to drive its revenue in future. In addition, the company’s Singapore facility Fab 7 is expected to bolster volumes at lower costs. So growing sales volume due to increased demand, and lower manufacturing cost would improve margins for Micron, and generate additional business opportunity in the coming quarters.
DRAM Business Looks Encouraging with Elpida
Micron expects the industry dynamics for DRAM to remain favourable in 2014 with supply being under control. The company plans to bring the DRAM production in line with demand, while its capacity is being shifted for NAND production.
Apart from this, Micron’s Elpida acquisition, completed in July 2013, is helping the company in the growth process. Elpida is a Japanese chipmaker specialized in mobile DRAMs. Last quarter, Micron recorded 69% sequential revenue growth in its DRAM business mainly due to synergies from Elpida.
One of Elpida’s prime customers was Apple (AAPL, Financial), and no wonder Micron is the key beneficiary. Apple”²s latest iPhone 5S and iPad Air feature Elpida’s 1GB LPDDR3 SDRAM. Last quarter, Micron signed a long-term DRAM supply agreement for $250 million. Although Micron did not mention the customer name, many are speculating that it could be Apple.
A report from Research and Market shows that usage of mobile DRAMs in smartphones will increase and that global mobile DRAM market will grow at a CAGR of 10.4% from 2013 to 2018. With Elpida, Micron could gain from this market going forward.
Last Thoughts
Elpida acquisition has not only strengthened Micron’s position in the DRAM industry, but it has also assisted the company in taking advantage of the surging mobile DRAM market. Although declining NAND prices are a concern, growing SSD demand could continue to boost the company’s sales volumes. With Elpida and SSD as its trump card, it seems that Micron is heading for another good quarter.
