Micron Technology (
) is a manufacturer and marketer of memory products, primarily
dynamic random access memory (
) for PCs and mobile devices, NAND Flash and NOR Flash memory
products. Micron derives 40% of its revenue from DRAM, and we
estimate the division to contribute over 51% to its valuation. DRAM
is a memory product that stores data inside a computer for short
periods of time while the device has power. Micron develops
different types of DRAM including mobile DRAM products that
are specialty DRAM memory devices designed for
applications demanding minimal power consumption such as
smartphones and tablets.
The slowdown in PC shipments, combined with intense competition
and macro headwinds, has put the DRAM market in oversupply. The
demand-supply mismatch has further pressurized selling prices,
eroding Micron's gross margins for the DRAM business. Though
the global DRAM shipments continue to increase, the growth rate has
slowed on account of the above mentioned factors.
While PCs continue to account for a significant proportion of
total shipment, Micron's share in the DRAM market has been
declining. On the other hand, smartphones and tablets are
starting to account for an increasing proportion of DRAM
sales. Considering the growing popularity of smartphones and
tablets, we expect mobile devices to account for a higher
proportion of DRAM sales in the future and estimate the rapid
growth in mobile devices to accelerate DRAM shipments despite a
slowdown in the PC market.
The rapid growth of mobile devices combined with increasing DRAM
usage will drive overall DRAM shipments from 29.3 billion in 2012
to 334 billion by 2019. Given Micron's acquisition of Elpida, a
semiconductor DRAM memory manufacturer, in June 2012, Micron
is expected to benefit from this growing trend. Below we discuss
the potential growth in the DRAM market and highlight the benefits
of Micron's acquisition of Elpida.
our complete analysis for Micron here
What is DRAM? What is the proportion of different
products in the DRAM market?
DRAM is a memory product that stores data inside a computer or
laptop while the device has power. We can think of DRAM as a
short-term memory that computing devices require for executing
programs. Micron develops different technologies of DRAM -
SDRAM, DDR, DDR2, DDR3- for use in PCs, networking devices,
servers, consumer electronics and other communications equipment.
It also develops mobile DRAM products that are specialty DRAM
memory devices designed for applications that require minimal power
consumption such as smart phones, GPS devices, tablets, as
personal digital assistants and digital still cameras.
For over three decades PCs have accounted for more than 50% of
the DRAM market. However, during Q2 2012, PCs share in global DRAM
shipments stood at 49%, the first time since 1980 when it did not
consume the majority of DRAM memory products. On the contrary,
mobile DRAM's market share in total DRAM shipments increased from
7.9% in Q1 2012 to 17.8% in Q2 2012.
The semiconductor industry is undergoing a shift with
tablets and smartphones replacing PCs as the growth engine of the
semiconductor industry. We believe that the rapid increase in
mobile devices will help fuel growth in DRAM shipments in the
future. Research firm iSuppli forecasts the combined share of
mobile handsets and tablets in the DRAM market to reach 26.7% by
the end of 2013, almost double from 14.1% in Q1 2012.
Increasing mobile DRAM Content in Smartphones and Tablets
Will Further Drive Demand
In addition to increasing mobile device shipments in the future,
higher memory content (more DRAM bits being loaded onto the
devices) will also contribute to growth in DRAM shipments. For
example, the third-generation new iPad has double the DRAM content
of its predecessor.
As per iSuppli, the average DRAM content per smartphone
increased to 5.1 Gb in 2012 compared to 3.5 Gb and 2.3 Gb in 2011
and 2010, respectively. DRAM content per tablet was estimated to
reach 8 Gb by 2012, a significant increase from 4.5 Gb and 2.3 Gb
in 2011 and 2010, respectively.
We forecast the global DRAM shipments to increase to 334 billion
units by 2019 from the current level of 20 billion
units. Apart from shipments and content growth in smartphones
and tablets, other applications of mobile DRAM - portable media
players, DSC and portable GPS navigation systems - will contribute
to higher DRAM shipments as they witness faster memory content
growth in the future.
Elpida Acquisition Will Expand Micron's Mobile DRAM
Micron expects to complete Elpida's acquisition by mid-2013.
While Micron is the leader in enterprise DRAM solutions for
networking and servers, Elpida has a strong presence in mobile
DRAM. Micron currently generates less than 10% of its revenue from
mobile DRAM. However, with access to Elpida's manufacturing
capabilities and intellectual properties, we expect the proportion
to increase in the future.
In addition to a higher market share, Micron will have the added
advantage of supplying chips to Apple (
), which could further boost its DRAM shipments. Last year Apple
placed a new order for DRAM chips with Elpida, cutting its reliance
on rival Samsung for component supplies.
Though the slowdown in PC shipments has impacted demand for DRAM
products, the increasing popularity of smartphones and tablets will
fuel future growth in DRAM shipments. In addition to increasing
contribution of mobile devices in DRAM shipments, we expect the
growing DRAM content in these devices to drive demand for DRAM
With Elpida on board, we feel Micron will be
better equipped to leverage potential growth in the DRAM
market. Micron targets to complete the acquisition by the
first half of 2013.
Our price estimate of $6.53 for Micron
is at a slight discount to the current market price.
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