Helped by improving memory market dynamics, rising product
prices and inclusion of Elpida Memory in its portfolio, Micron
) reported strong Q4 2013 results Thursday, October 11. Including
the $1.5 billion acquisition gain, the company reported net sales
of $2.8 billion and a net income of $1.7 billion. For fiscal year
2013, net sales ($9.1 billion) expanded by 10% and Micron reported
a net profit of $1.2 billion as compared to a loss of $1 billion a
year ago. Excluding the gain realized from Elpida, Micron's full
year operating income improved to $236 million compared to an
operating loss of $612 million in fiscal 2012, as it benefited from
a reviving memory market.
With a large and diverse memory product portfolio and the
second largest installed manufacturing capacity, Micron is in a
strong position to benefit from the improving industry dynamics.
Nevertheless, with the unpredictability in memory product prices we
maintain a cautions outlook for Micron.
We are in the process of updating our price estimate for Q4 2013
earnings. At present,
our price estimate of $13.4
7 for Micron
is at a more than 20% discount to the current market price.
our complete analysis for Micron here
Elpida's Acquisition Doubles Micron's DRAM Business &
Increases Its Mobile Penetration
Supported by a 42% rise in sales volume and a 5% increase in
ASPs, Micron reported a 50% q-o-q growth in its DRAM revenues
($1.24 billion). In addition to improving DRAM market dynamics and
increasing prices, Micron's DRAM segment benefited from the
inclusion of Elpida sales for a month. Micron completed its
acquisition of Elpida in July this year. Excluding Elpida sales for
August, Micron's revenue was up 16% q-o-q driven primarily by the
increase in DRAM prices for the second consecutive quarter.
Samsung and SK Hynix were the top two players in the DRAM
market with shares of 37% and 26%, respectively. However, as
per research firm IDC, Micron and Elpida together account for 28%
of the market, making Micron the second largest DRAM player behind
Samsung. The fab assets acquired from Elpida and Rexchip have
increased Micron's manufacturing capacity by approximately 45%.
Additionally, the acquisition of Elpida helps Micron expand
its footprint in the mobile DRAM market, the fastest growing DRAM
segment. Though Micron is the leader in enterprise DRAM
solutions for networking and servers, it generated less than 10% of
its revenue from mobile DRAM. Elpida on the other hand has a
strong presence in mobile DRAM and targets mobile phones as well as
tablets. Sourcing chips for iPhone and iPad for quite
some time, Elpida is Apple's key supplier.
In its earnings call, Micron declared that mobile DRAM now
accounts for over 30% of its DRAM bits, similar to PCs. The
inclusion of one month of Elpida's results accounted for
approximately 20% of the total DRAM bit shipments in Q4 2013.
Elpida's Product Mix Lowers DRAM ASPs
DRAM product prices have significantly improved in the last
few months as strong demand coupled with their restricted supply
has eased downward pressure on prices. According to Bloomberg,
the prices of memory chips have increased 19% this month subsequent
to the fire at SK Hynix's factory in China. Micron witnessed a 5%
growth in its ASPs in Q4 2013, and expects prices to grow mid
single digits (sequentially) in the current quarter.
Micron claims that the Elpida's product mix has a lower average
price compared to Micron's DRAM product portfolio, which it
believes will offset some of the price increase in the future.
Micron has a higher mix of premium ASP segments such as
networking and servers, while Elpida has a higher mix of sales
in wafer form. Currently, Elpida sells approximately 20% of its
volume in wafers which reduces the ASP and cost per bit.
Since manufacturers are devoting their capacity to produce
mobile DRAM products, commodity DRAM products have been in short
supply. Thus, buyers are building up their commodity DRAM inventory
to avoid any potential supply shortage in the future. The
trend might not last in the long run as the underlying cause for
the price rise is more due to the strategic move of OEMs rather
than any fundamental change in market demand for commodity DRAM.
Additionally, Micron claims that its OEM contract pricing, while
increasing, continues to lag the rising spot market.
SSD Demand Is Driving NAND Growth
Micron earned 5% higher revenues sequentially from the sale
of NAND Flash products, as the 17% growth in sales volume was
offset by an 11% decline in ASPs. Much of the increase in sales
volume was due to growth in Micron's SSD business, which it
believes to be growing significantly faster than the overall SSD
market. At present, Micron earns 50% of its NAND revenues from SSDs
and around 30% and 10% from consumer segment and mobile,
Micron branded SSDs and sales of strategic SSD customers consume
more than 60% of the company's NAND trade bit. Micron branded
SSD revenue for fiscal 2013 grew by 76%. At present, 50% of
Micron's trade NAND revenues is accounted for by either Micron
branded SSD or the company's customers who serve the SSD
market with Micron's NAND technology. The company is building
a large solid foundation in SSDs, through the expansion of its
own SSD product lines as well as through strategic customer
engagement in the space.
Micron anticipates NAND demand to rise at an average annual rate
of 43% in the next five years and believes that the rising mobile
shipments as well as growing demand for SSDs will be the primary
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