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WIKI ANALYSIS
Micron Technology (NYSE: MU) manufactures dynamic random access memory (DRAM), NAND flash memory, and complementary metal oxide semiconductor (or CMOS) image sensors. DRAM and NAND provide memory storage and retrieval for various electronic devices such as personal computers and MP3 players; iPod Nanos, for example, utilize NAND memory to store songs. CMOS sensors are used to produce images for camera phones, digital camers, and other imaging devices.
Historically, Micron has been heavily DRAM oriented, which accounted for 92% of sales in 2004. Dangerous oversupply of DRAM memory has forced selling prices to drop between 24% - 60% per year. This immense downward pricing pressure has forced Micron to diversify its product portfolio. In 2007, DRAM accounted for only 65% of total revenues. Micron was the leader in CMOS imaging in 2006 and has made a push into the NAND flash memory market as well. The manufacturing of DRAM and NAND is somewhat similar allowing memory makers to adjust production volume depending on industry cycles (i.e., produce more NAND when DRAM demand is low). While this makes NAND a logical market for Micron, the company must compete with NAND heavyweights such as Samsung and Sandisk (SNDK) which, in 2006, generated flash memory revenues of $6.4 billion and $3.2 billion respectively. In 2007, NAND sales for Micron accounted for 23% ($1.3 billion) of total revenue, up from 6% ($316 million) in 2006. Micron's joint venture with Intel (INTC) announced that they have produced a high speed NAND flash memory technology that is supposedly five times faster than conventional NAND.
Company Overview
Micron made 88% of its sales from memory products in 2007. [1] It has diversified its product portfolio by becoming a leader in CMOS imaging and a producer in flash memory. Micron has a very strong patent portfolio that gives it a technological edge on some of its competitors, but a difficult pricing environment makes it hard to turn a strong profit.
PC Dynamic Random Access Memory (DRAM)
DRAM memory devices enable high-speed data storage and retrieval. Micron's PC DRAM product offerings are focused for use in computers. PC DRAM makes up 47% of Micron's sales. Total DRAM was 65% of sales in 2007, this percentage has declined 27 percentage points since 2004.
Specialty DRAM Micron's specialty DRAM, consisting of synchronous DRAM (SDRAM), pseudo-static RAM (PSRAM), and mobile DRAM, are aimed more towards servers, handheld electronics, and computer peripherals. Micron is the leader in PSRAM, which is primarily used in cell phones.
NAND Memory NAND memory or flash memory is used largely in cell phones, digital cameras, USB devices, and MP3 players such as the iPod Nano and Shuffle. Micron acquired Lexar, an independent flash memory manufacturer, to aid in its transition to flash memory. Micron plans on beginning production of flash drives (also known as solid state drives) in first quarter 2008. Flash drives are reportedly 1000x faster and use 10x less power than conventional hard drives. NAND made up 23% of Micron sales in 2007.
Imaging Micron is a leading manufacturer of complementary metal-oxide semiconductor (CMOS) image sensors along with OmniVision Technologies. CMOS is used in cell phone cameras, digital cameras, and other new imaging applications. Imaging accounted for 12% of sales in 2007. This is up from only 2% in 2004. In 2006, gross margin for imaging was 34% as opposed to 17% in memory. Micron, per its' most recent annual report, wishes to sell this division due to the heavy losses incurred during the recent quarters.
| Company | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 |
|---|---|---|---|---|---|---|
| Memory | >99% | >99% | 98% | 94% | 86% | 88% |
| Imaging | <1% | <1% | 2% | 6% | 14% | 12% |
Trends and Forces
Downward Pricing Pressure
The DRAM market has been plagued by huge price cuts over the years. This downward pricing pressure is driven by the oversupply of DRAM memory in the market, along with the additional price pressure from PC makers. The price decreases sometimes result in the selling price dipping below production cost, making for a very difficult business environment. The cause of this oversupply is because Microns and its competitors must build multi billion dollar facilities to make the memory devices, but then they operate the facilities at almost 100% capacity to make up the fixed cost of the factory, creating huge oversupply. Given the production correlation between NAND and DRAM, the introduction of NAND into Micron's arsenal may be able to take away some of fixed cost pressure of the production facilities. At the same time, NAND is exposed to similar supply issues.
Countering Oversupply
If demand is high and Micron is able to find ways to lower manufacturing costs then the huge supply is not as much of a problem. Unfortunately, supply frequently tops demand and lowering manufacturing costs at an effective rate is difficult. Memory producers hope Windows Vista will soften the impact of oversupply by helping increase memory demand for the memory-intensive software. Increased demand from emerging markets--China accounted for 19% of total sales in 2007,[4]--could also help relieve pricing pressure. Micron has one of the strongest patent portfolios in the industry allowing it to have a technological edge over many of its competitors. Micron has consistently ranked in the top 10 of companies with the most patents issued per year. In this industry innovation and technological advancement is paramount considering the constant need to lower manufacturing costs and replace obsolete products.
Making Its Way into the Flash Memory Market
Micron's entry into NAND memory provides a complementary product to DRAM and gives Micron a hand into a new market. Demand for the iPhone, iPod and similar products could be a major driver of flash memory over time. On the other hand, Micron acquired Lexar which was a low-profitability independent flash memory manufacturer; the acquired company is also involved in a price collusion lawsuit. In addition, Micron must compete with the established flash memory producers in Samsung, Sandisk (SNDK), and Toshiba (TOSBF). To help build market share, Micron is involved in a joint venture project with Intel (INTC) on producing NAND memory. This partnership has helped Micron achieve over 40% revenue growth in NAND for the last two quarters of 2007.
A major boon to the demand for flash memory could be on the horizon as laptops increasingly adopt flash memory as hard drives. Traditional magnetic spinning hard drives are less stable, use 10 times as much energy, and are slower; they are however, currently much cheaper per unit of memory.
Semiconductor Demand
Micron's profitability is highly correlated with the product cycles of various key devices that drive semiconductor demand. Cell phone technology and adoption plays a large role for PSRAM, NAND, and imaging. PSRAM is primarily used in cell phones, and camera phone technology increases imaging sales. Many of today's newest technology is smaller in size, but, at the same time, demand for memory capacity is greater. Smaller cell phones, specifically the iPhone, are major potential drivers of NAND demand. In the case of PC's, Windows Vista could have a similar impact on DRAM demand.
Heavily Tied to the Computer Market
About 50% of Micron's sales went to the commoditizing personal computer market in 2007. Micron's DRAM weighted product portfolio is the main cause of this heavy dependence on the computing market. Micron is also greatly influenced by Hewlett-Packard Company (HPQ), which accounted for over 10% of sales in 2007.
Competition
Micron faces formidable competition from essentially every market in which it operates. Nearly all of Micron's products act very similar to commodity products. This means they have relatively short lifespans and product timing is not only important, but also very difficult.
Sandisk (SNDK): It is a major flash memory manufacturer with 2006 flash memory revenues of $3.2 billion.
Samsung: It is the leading flash memory manufacturer with 2006 flash memory revenues of $6.4 billion. In 2005, Samsung was also the leader in DRAM with sales of $7.4 billion.
Toshiba (TOSBF): Toshiba is a large electronics company that sells primarily in Japan, 51% in 2006.
OmniVision Technologies (OVTI): Omnivision is the largest producer of CMOS imaging by sales and quantity.
Elpida Memory (ELPDF): Elpida is a small Japan-based DRAM producer. In 2005, Elpida's DRAM sales were just over $1.7 billion.
Hynix Semiconductor (HXSCL): Hynix was the second largest DRAM supplier in 2005 with sales of $4.1 billion.
Qimonda AG (QI): Qimonda is a major DRAM producer with a 12.6% market share in 2005.
Market Share for DRAM
| Company | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 |
|---|---|---|---|---|---|---|
| Micron | 18.9% | 19.1% | 18.5% | 18.9% | 15.8% | 15.3% |
| Samsung | 21.1% | 27% | 32.2% | 29% | 30.9% | 31.8% |
| Hynix | 17.2% | 14.5% | 12.8% | 14.8% | 16.3% | 16.3% |
| Elpida | 10.6% | 8.5% | 4.2% | 4.4% | 6% | 7.1% |
| Qimonda | 8.5% | 9.7% | 11.7% | 15.4% | 13.3% | 12.6% |
Market Share for NAND
| Company | 2003 | 2004 | 2005 |
|---|---|---|---|
| Micron | 0% | 0.1% | 1.7% |
| Samsung | 48.5% | 53.5% | 50.7% |
| Toshiba | 28.1% | 25.4% | 19.3% |
| Hynix | 0% | 3% | 12.4% |
| SanDisk | 12.4% | 10.9% | 8.3% |
Financial Statistics
"The Company’s fiscal year is the 52 or 53-week period ending on the Thursday closest to August 31."[5]
Memory
Imaging
Gross Margins
References
- ↑ 10-K report
- ↑ 10-K report
- ↑ Annual Report 2007
- ↑ 10-K report
- ↑ 5.0 5.1 5.2 5.3 Micron Technologies 2007 10-K
- ↑ 6.0 6.1 Micron Technologies 2008 Q1 10-Q
- ↑ 7.0 7.1 Micron Technologies 2007 Q3 10-Q
- ↑ 8.0 8.1 Micron Technologies 2007 Q1 10-Q
- ↑ 9.0 9.1 9.2 Micron Technologies 2006 Q3 10-Q
- ↑ 10.0 10.1 10.2 Micron Technologies 2006 Q1 10-Q
- ↑ Micron Technologies 2005 Q1 10-Q
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