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Strong DRAM Demand & Pricing to Aid Micron (MU) Q3 Earnings
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Micron Technology Inc. (MU - Free Report) has been the key beneficiary of the upswing in DRAM prices and strong demand that was triggered in the second half of calendar-year 2016. The company’s financial results, since then, have reflected the trend as quarterly revenues increased at a rate of more than 50%. Its earnings have also witnessed significant growth.
The company is likely to have continued its impressive performance in the third quarter of fiscal 2018 as well. Encouragingly, the DRAM market has been witnessing a huge demand-supply gap, which is escalating prices, consequently infusing optimism for the stock. And it should be noted that as Micron generates majority of its revenues by selling DRAM products, it is the biggest beneficiary of this supply shortage.
As long as memory prices and demand continue to rise, Micron will continue to benefit. The ongoing investigation by the government of China on allegations that the company, along with Samsung and SK Hynix, indulged in fixing memory prices is unlikely to conclude any time soon. This lowers the possibility of any negative impact on demand and prices in the near term.
Let’s discuss which factors are liable for this demand-supply mismatch.
Datacenters Drive Demand for DRAM
The need for effective storage facility has been growing rapidly with the immense volume of data generated through smartphones and Internet-connected devices, along with the increasing adoption of artificial intelligence (AI) and cloud computing. Notably, AI-enabled servers require five to six times the capacity of regular DRAMs compared to standard cloud servers.
Moreover, self-driving vehicles need to make real-time decisions by analyzing large amounts of data, which necessitates the use of high-performance DRAMs. This is also likely to spur demand for DRAMs.
Market research firm International Data Corporation (IDC) forecasts that by 2025, the global datasphere will grow to 163 zettabytes (trillion gigabytes), which is 10 times the 16.1 zettabytes (ZB) of data generated in 2016. More importantly, almost 20% of this will be critical to daily lives and nearly 10% will be hypercritical.
Looking at the immense opportunity in data storage, data-center operators, such as Amazon (AMZN - Free Report) , Alphabet (GOOGL - Free Report) and Facebook , have accelerated their server-deployment efforts to grab market share in the cloud-service space.
This has been driving demand for DRAM content. We believe the surge in demand will be conducive to Micron’s DRAM segment revenues in the fiscal third quarter.
Higher Capacity Smartphones Spur Demand
Over the past few quarters, demand from smartphone makers for higher capacity DRAM content has soared. Smartphone makers, including Samsung, OnePlus, HTC and Xiaomi, have come up with higher memory phones comprising RAM of 6 GB or 8 GB.
As per data compiled by DRAMeXchange, smartphones recorded 33.4% growth in DRAM content in 2017, to an average of 3.2 GB per device. As smartphone original equipment manufacturers (OEMs) plan to roll out devices with higher capacity, demand for DRAM is likely to shoot up much faster, thereby benefiting Micron’s top and bottom-line results.
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Strong DRAM Demand & Pricing to Aid Micron (MU) Q3 Earnings
Micron Technology Inc. (MU - Free Report) has been the key beneficiary of the upswing in DRAM prices and strong demand that was triggered in the second half of calendar-year 2016. The company’s financial results, since then, have reflected the trend as quarterly revenues increased at a rate of more than 50%. Its earnings have also witnessed significant growth.
The company is likely to have continued its impressive performance in the third quarter of fiscal 2018 as well. Encouragingly, the DRAM market has been witnessing a huge demand-supply gap, which is escalating prices, consequently infusing optimism for the stock. And it should be noted that as Micron generates majority of its revenues by selling DRAM products, it is the biggest beneficiary of this supply shortage.
As long as memory prices and demand continue to rise, Micron will continue to benefit. The ongoing investigation by the government of China on allegations that the company, along with Samsung and SK Hynix, indulged in fixing memory prices is unlikely to conclude any time soon. This lowers the possibility of any negative impact on demand and prices in the near term.
Micron Technology, Inc. Price and EPS Surprise
Micron Technology, Inc. Price and EPS Surprise | Micron Technology, Inc. Quote
Let’s discuss which factors are liable for this demand-supply mismatch.
Datacenters Drive Demand for DRAM
The need for effective storage facility has been growing rapidly with the immense volume of data generated through smartphones and Internet-connected devices, along with the increasing adoption of artificial intelligence (AI) and cloud computing. Notably, AI-enabled servers require five to six times the capacity of regular DRAMs compared to standard cloud servers.
Moreover, self-driving vehicles need to make real-time decisions by analyzing large amounts of data, which necessitates the use of high-performance DRAMs. This is also likely to spur demand for DRAMs.
Market research firm International Data Corporation (IDC) forecasts that by 2025, the global datasphere will grow to 163 zettabytes (trillion gigabytes), which is 10 times the 16.1 zettabytes (ZB) of data generated in 2016. More importantly, almost 20% of this will be critical to daily lives and nearly 10% will be hypercritical.
Looking at the immense opportunity in data storage, data-center operators, such as Amazon (AMZN - Free Report) , Alphabet (GOOGL - Free Report) and Facebook , have accelerated their server-deployment efforts to grab market share in the cloud-service space.
This has been driving demand for DRAM content. We believe the surge in demand will be conducive to Micron’s DRAM segment revenues in the fiscal third quarter.
Higher Capacity Smartphones Spur Demand
Over the past few quarters, demand from smartphone makers for higher capacity DRAM content has soared. Smartphone makers, including Samsung, OnePlus, HTC and Xiaomi, have come up with higher memory phones comprising RAM of 6 GB or 8 GB.
As per data compiled by DRAMeXchange, smartphones recorded 33.4% growth in DRAM content in 2017, to an average of 3.2 GB per device. As smartphone original equipment manufacturers (OEMs) plan to roll out devices with higher capacity, demand for DRAM is likely to shoot up much faster, thereby benefiting Micron’s top and bottom-line results.
Currently, Micron sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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