Weak DRAM Prices Impacted Micron's Fiscal 1Q16 Earnings

(Continued from Prior Part)

Micron’s sensitivity to DRAM prices

In the last part of the series, we looked at Micron Technology’s (MU) overall earnings performance. Now, we’ll look at the performance of DRAM (dynamic random-access memory) and NAND (negative AND) products.

The ASP (average selling price) of DRAM fell 13% during fiscal 1Q16. Micron’s cost per bit only fell by 10%. In fiscal 4Q15, the DRAM ASP fell by 7%, while Micron’s cost per bit rose by 3%. Although Micron significantly reduced its cost per bit over the quarter, DRAM prices fell faster. Since DRAM accounts for 58% of the company’s revenue, the revenue is sensitive to DRAM prices.

DRAM product mix

Micron’s DRAM product mix includes mobile DRAM, PC DRAM, specialty DRAM, and server DRAM. The company expects the DRAM shipments to grow ~20% in 2016 with demand shifting away from PCs towards mobile and enterprise devices.

DRAM industry update

The DRAM industry consolidated over the years. Now, it’s dominated by three players—Samsung (SSNLF), SK Hynix, and Micron. Micron is ramping up 20nm DRAM production to compete with Samsung in terms of cost.

Intel (INTC) predicts that DDR4 (double data rate fourth generation) systems will dominate the DRAM space in 2017. Currently, they’re used in high-end computing and servers. Samsung is reducing DDR4 prices to gain market share. Micron is still ramping up DDR4 production.

Micron’s sensitivity to NAND prices

NAND ASP fell 7% in fiscal 1Q16 while Micron’s cost per bit fell 6%. In fiscal 4Q15, both ASP and the cost per bit fell 1%. Micron is less sensitive to NAND prices as it accounts for 34% of the company’s revenue. There was pricing pressure in the client SSDs (solid-state drive) and eMCPs (embedded multi-chip package) segment in fiscal 1Q16. This is expected to continue in fiscal 2Q16.

NAND product mix

The company’s NAND product mix includes consumer NAND, mobile, SSD, and AIMM (automotive, industrial and multi-market). The company expects NAND shipments to grow around 30%–40% in 2016 with demand shifting towards SSD and mobile.

NAND industry update

The NAND industry is dominated by five players—Samsung, Toshiba (TOSBF), Micron, SK Hynix, and Intel (INTC). The industry is moving to 3D technology. Micron is ramping up 3D NAND production at its Fab 10X in Singapore (EWS).

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Micron’s Fiscal 1Q16 Earnings Missed Analysts’ Estimates

• Part 3 - Micron’s Business Segments Reported Falling Revenue

• Part 4 - Falling Revenue for Micron’s Mobile and Embedded Business