Micron Reports Strong Q1'15 Earnings But Indicates Lower DRAM & NAND Output For 2015

Trefis Team
Trefis Team , Contributor

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Leading memory products manufacturer, Micron Technology reported another strong quarter with its fiscal Q1 2015 results. (Fiscal years end with August.) It generated revenues of $4.6 billion, which was up 13.1% year to year and 8.2% sequentially. Driving this performance was both continued favorable market conditions and solid execution from the company. The company reported net income in excess of $1 billion. Demand growth was driven by customers rapidly increasing memory content to enable them to enhance the performance of their products, as opposed to just unit growth of end systems. Though Micron expects the market conditions will remain favorable for its business in 2015, led by constrained supply in DRAM and solid demand for both DRAM and NAND, it expects its DRAM and NAND output growth to lag the industry growth in 2015. The same is reflected in the company’s guidance for the quarter (mentioned below). While the earnings were within company guidance, they fell short of Wall Street consensus.

Our price estimate of $32.40 for Micron is in line with the current market price. We are in the process of updating our model for the Q1 2015 earnings.

See our complete analysis for Micron here

Micron’s DRAM Production To Lag Industry Growth In 2015

Micron’s DRAM revenue increased 9% sequentially in Q1 2015, primarily due to an increase in bit sales volume and stable average selling prices. DRAM gross margin improved a couple of percentage points into the low 40% range in the quarter. The company claims that the outlook for DRAM supply remains tight, and though demand is increasing, the existing capacity base is sufficient to cater to the rising demand just by investing in technology. For 2015, Micron projects industry bit growth in the low to mid 20% range. In the company’s view, even with steps taken to address the otherwise declining gross wafer production in DRAM the net wafer output in the industry will stay relatively steady or decline slightly going forward leading to a relative stability of bit supply growth beyond 2015.

Since Micron is currently preparing fabs for advanced technology deployment, including 20-nanometer in subsequent 1x and 1y nodes, it expects its DRAM production to be down sequentially in Q2 2015, which in any case is a seasonally slower demand period. The company claims that the above mentioned nodes are increasingly challenging and thus can act as a short-term headwind in terms of bit shipments. For calendar year 2015, too, Micron expects its DRAM production to come in below the market due to the above mentioned product disruption for technology upgrade. The 20-nm technology, which is being deployed this year, reduces wafer output by about 15% to 20% for a given square foot of clean room space compared to 30-nm.

Nevertheless, Micron expects the DRAM demand-supply situation to continue being favourable for the foreseeable future. The company is confident of being in a strong position to leverage future growth in the DRAM market. The mobile and server segments are the fastest growing in terms of DRAM demand, with annual growth projected in the range of 30%-50%. The acquisition of Elpida last year considerably expanded Micron’s footprint in the mobile DRAM market. Mobile now represents roughly 25% of Micron’s DRAM business. Prior to Elpida’s acquisition, Micron generated less than 10% of its revenue from mobile DRAM. Micron claims that its server business remains a very attractive segment with a demand profile that is less sensitive to price fluctuations in the market. The segment currently accounts for more than 10% of Micron’s total DRAM revenue.

NAND To Be Comparitively More Volatile In The Short-Term

Micron’s Trade NAND revenue increased 14% in Q1 2015, with a 20% increase in bit sales volume partially offset by a 6% decrease in average selling price. The trade NAND gross margin was down slightly (to the mid-20% range) in the quarter as cost reductions per bit partially offset the decline in selling prices.
http://www.forbes.com/sites/greatspeculations/2015/01/08/micron-reports-strong-q115-earnings-but-indicates-lower-dram-nand-output-for-2015/

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