Micron Plagued in 3Q15 by Sluggish PC Market and DRAM Prices
Fluctuating DRAM prices and flat volume growth
In its fiscal 3Q15 earnings release, Micron Technologies (MU) blamed its disappointing results on fewer PC (personal computer) shipments and a 10% fall in DRAM (dynamic random access memory) average selling prices (or ASPs). DRAM sales volumes were also rather flat, leading to a decline in DRAM revenues.
Micron is expecting stability in DRAM ASPs. Management said Micron is “forecasting DRAM industry supply bit growth in the mid-20s in calendar 2015 and in the low-to-mid 20 per cent range in calendar 2016.”
The above graph shows the market share of leading semiconductor players in 2014. Intel (INTC) led the space with 15.4% market share. It was followed by Samsung and Qualcomm (QCOM), which held 10.2% and 5.7% share, respectively.
DRAM products are high-density, low-cost-per-bit RAM (random access memory) devices that provide high-speed data storage and retrieval. Micron’s standard DRAM products include DDR4, DDR3, and DDR2. In simple terms, DRAMs are the memory chips used in computers and servers as main memory systems.
Factors impacting DRAM prices
Since 2011, DRAM prices have been on a decline. There’s been declining popularity and sluggish growth in PCs due to the SMAC (social, mobile, analytics, and cloud) revolution, which has caused an oversupply and declining demand for DRAM chips. And an increase in mobile DRAM sales is putting pressure on DRAM prices, consequently impacting semiconductor companies.
The DRAM industry, like the semiconductor industry, is cyclical in nature. It’s characterized by periods of tight supply brought about by increased demand, called upturns. These are followed by periods of surplus inventory caused by declining demand, called downturns.
Currently, the transition in the industry is from an undersupply to an oversupply situation. Micron, however, claims that as the supply situation improves, higher demand will likely stabilize the decline in DRAM’s average selling prices.
If you’re bullish about Micron Technology, you can invest in the PowerShares QQQ ETF (QQQ) and the Technology Select Sector SPDR (XLK). QQQ and XLK invest about 0.59% and 0.77%, respectively, in Micron.
Browse this series on Market Realist: