Why Micron's 2nd quarter results signal the company's revival (Part 6 of 7)
DRAM capacity in the industry has normalized
During the conference call to discuss fiscal Q2 2014 earnings, Micron’s (MU) management mentioned that DRAM capacity in the industry has normalized following the recovery of one of its competitor’s fabrication facilities in China. Despite this capacity recovery, DRAM market conditions remain favorable and inventories in the channel remain relatively tight below normal levels. As the chart below shows, Micron expects the total industry bit supply growth to be around 23% in 2014, and it predicts about 25% growth beyond 2014. This is good news for Micron, which depends heavily on the supply chain to manufacture its line of semiconductor products.
Micron predicts a favorable outlook for the memory industry
Micron’s DRAM and NAND products cater to various segments of the industry. DRAM products are random access memory devices used in servers, PCs, and mobile devices to provide data storage and retrieval, while NAND Flash products are mass storage devices used in mobile phones, solid-state drives, tablets, and computers. HP (HPQ) and Intel (INTC) are Micron’s two main customers, and Micron must win customers over rival companies like Samsung (SSNLF) and Sandisk (SNDK).
During the conference call, Mark Durcan, Micron’s CEO and director, said,”Our outlook for memory industry conditions remains favorable. We believe the current industry structure is fundamentally changed and we can now manage our business focused on return based capital and supply decisions which was not always possible in the past. In terms of DRAM, it appears that Hynix’s Wuxi fab is back online and it supplies in the market. Low supplier and customer inventory across multiple segments coupled with our reduction in DRAM capacity as we convert Singapore to NAND has led to an overall stable supply situation, and we continue to see favorable market conditions in what is generally a slow seasonal period.”
Durcan further commented, “We expect to see DRAM industry wafer production down at mid-single digits in 2014 as a result of DRAM to NAND conversions and the ongoing increase in process complexity as geometry shrinks. We expect total industry bit supply growth in the low to mid 20% range for 2014. This is slightly lower than our prior estimate. Beyond 2014, we expect similar year-over-year industry supply growth in the 20% to 30% range driven by relatively stable wafer output coupled with slowing process technology migrations compared to historical trends.”
Mark Adams, Micron’s president, explained, “This upside was driven by improvement in overall cycle times as well as continued favorable demand and supply balance in the market. From what we can tell, DRAM capacity in the industry has normalized following the recovery of one of our competitor’s fabs in China. Despite this capacity recovery DRAM market conditions remain favorable and inventories in the channel remain relatively tight below normal levels.”
Browse this series on Market Realist:
- Part 1 - Why Micron’s 2nd quarter results signal the company’s revival
- Part 2 - Why Micron expects more strong demand growth for some products
- Part 3 - Micron’s gross margins keep improving due to cost efficiencies