Micron’s Technology Gap Is a Concern for Growth Prospects
Micron's New Products Target 3D NAND Space in 2H15 and Beyond
Price volatility and sluggishness in PC market impacted Micron’s revenues and earnings in 3Q15
In Micron’s (MU) fiscal 3Q15 earnings series, we saw that an unfavorable pricing environment and lower-than-expected demand in the PC segment impacted revenues. Price volatility in DRAM (dynamic random access memory) combined with lower sales volume severely hit Micron’s overall revenues in 3Q15. However, networking DRAM pricing managed to remain stable, chiefly due to LTE deployment in China (MCHI) and other emerging markets.
Read more about this topic in Market Realist’s, Why LTE adoption in China should drive Micron’s DRAM business.
The DRAM industry is cyclical and its pricing is dependent on the global supply and demand
The DRAM industry, like the semiconductor industry, is cyclical in nature. Currently, the transition in the industry is from an undersupply to an oversupply situation. Romit Shah, an industry analyst, is of the opinion that the “lagging technology roadmap” and an oversupply of DRAM chips are some real issues hovering around Micron’s prospects.
If the 20-nm technology ramp to maturity takes longer than expected, it will impact Micron’s margins and consequently the cash flow and shareholders. Micron, however, claims that as the supply situation improves, higher demand will likely stabilize the decline in DRAM’s average selling prices. Romit Shah also warned that the technology gap between Micron and its peer Samsung (SSNLF) creates a “cost disparity that is a risk to Micron’s margins.”
According to Sundeep Bajikar, a Jeffries analyst, “We expect supply-side corrective actions to potentially include deferral of portions of Samsung’s Line 17 DRAM build, and a production mix shift towards mobile DRAM. We expect demand upside from Samsung Galaxy S6 to overcome iPhone (AAPL) deceleration in CQ2 to drive a recovery in DRAM prices.”
If you are bullish about Micron Technology, you can invest in the PowerShares QQQ ETF (QQQ). QQQ invests about 0.59% in Micron.
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