TrendForce: Micron to Enjoy Growth in Three Major Product Lines thanks to Merger with Elpida and Industry Restructuring

According to DRAMeXchange, a research division of Trendforce, thanks in large part to the rising spot prices of DRAM (which has grown twofold since last November), the spot market price of DDR3 2Gb has a good chance of approaching $US 2 in the upcoming periods. The profits shown on Micron’s recent June 19th financial report are, in many ways, a reasonable indication of the positive trends that are currently emerging in the DRAM industry.

Observing from the market perspective, with Nanya officially transitioning into a specialty DRAM company and handing over its manufacturing responsibilities of Inotera to Micron, the US based chip maker can be said to be in a relatively strong position to increase its entire PC and server DRAM production. In the past, PC DRAM had been known to be largely unprofitable due to the intense competitions that took place within the market. The losses incurred in the industry had been so severe that, at one point, various DRAM manufacturers felt the urge to switch to the more profitable product lines. The DRAM industry’s financial woes would not change for the better until early 2013, when the production of PC DRAM shrunk and led to a continuously declining supply bit growth.

At present, both Samsung and SK Hynix are actively lowering their PC DRAM output in favor of manufacturing mobile and server DRAM. The decision is in many ways largely beneficial to Micron, whose PC DRAM production ratio is almost 50%. With regards to the second half of the year, given that Micron's and Elpida's merger process is set to complete during Q3 (a process which would in effect help to increase the wafer production volumes from 190K to 370K), it is reasonable to expect the new Micron group's presence in the mobile DRAM market to increase. As the DRAM market moves further towards an oligopoly, the company is expected to be able to pose legitimate challenges to both of the aforementioned Korean DRAM manufacturers.

Looking at the NAND Flash industry, given that the supplies in the NAND Flash market are being regulated more tightly this year, and considering how more and more manufacturers are transitioning to system products as a means to offset the weak sales effects in retail market, the contract prices in the NAND Flash market have, for the most part, remained flat throughout Q2 (from April to June). The severe oversupply situation in 2H12, it should be noted, has also experienced a notable improvement this year. With the manufacturing costs being lowered, Micron has continued its efforts to migrate from the 25nm processes to the 20nm processes, and is beginning to place a greater amount of emphasis on the more profitable 20nm-class NAND Flash products. In the second quarter, Micron's 20nm production proportion has officially surpassed 50%. As the manufacturing costs of making the 20nm products drop below those of the 25nm products, there is a chance for the US based chip maker to begin emerging as a more effective cost leader within the industry. Micron's NAND Flash production capacity, as of this moment, is at 180 thousand. Considering that the company's Tech plant in Singapore has been allocating production capacity from DRAM to NAND Flash, it is likely that in Q4, the number of the NAND Flash output will increase to 200 thousand.   

In the event that Micron sticks to its original plan of manufacturing embedded-type products, it is predicted that the chip maker will not only be able to secure the market share it already owns for SSD and specialty Flash products, but that it will also exert a noticeably greater impact on the eMMC and eMCP markets during 2H13. Because of this, we believe that the revenue of the NSG department will remain stable, and that the performances of the ESG and WSG departments will help provide a further boost to Micron's future NAND Flash revenue (given the increased use of NAND Flash in embedded applications as well as mobile devices).

Thanks to the merger with Elpida, PC DRAM, mobile DRAM, and NAND Flash are all expected to be Micron's major product lines. As the use of the 2Xnm processes intended for DRAM products increases in the next few quarters, and as the migration towards the 1Xnm NAND Flash process gradually intensifies, there is a good chance that Micron will experience at least a few more stable quarters with good operating margins (whether for DRAM or NAND Flash products). As long as the market gradually rebounds and Micron continues developing its core technologies, the company is poised to become a big winner in both the DRAM and NAND Flash industry.