One of the darling tech stocks of the last year has been Micron, a relative unknown in the world of technology compared to names like Intel, NVIDIA, and Samsung. With a stock price driven by market demands, and increasing over 90% in the last calendar year, there are lots of questions about the strength of Micron in a field where competitors like Samsung, and even Intel, are much bigger names.
Last month Micron earnings were eye opening. For its fiscal Q3 it had a 40% increase in revenue over Q3 the previous year. Even more impressive was a doubling of profit in that same period. The quarterly results had $3.82B in net income on $7.8B in revenue, with a Q4 forecast of $8.0-8.4B.
NVIDIA, by contrast, had $3.2B in revenue last quarter. Yet the GPU giant is getting more attention and more analysis than a company more than twice its size.
As part of the earnings announcement, Micron CEO Sanjay Mehrotra expressed confidence in the continued demand for memory as well as the ability for Micron to maintain its profit margins with consistent pricing. This was directly addressing a key segment of the financial analyst group that continue to worry that memory demand will dry up and limit the growth potential for Micron. Micron is at a higher risk in that scenario because of its singular focus on memory technology while competitors like Samsung and Intel are diverse.
This Boise, Idaho based company has to answer the same question as the rest of the memory vendors in the tech field: will demand for memory abate with product shifts in the market or when the build capacity catches up?
There are several reasons why we could see demand for both DRAM (system memory) and NAND (long term storage) memory slow down. By many measures the smartphone market has peaked, with only developing nations like China and India still increasing unit sales, but with much lower cost devices. China sales of phones are in flux thanks to trade war and tariff concerns – Qualcomm and Micron are both US-based and are major providers of smartphone technology. The Chinese government is investigating into memory price fixing accusations against all major vendors and a poor outcome there could incur major penalties and unpredictable changes to the market.
But the Micron CEO doesn’t believe those factors will win out, and neither do I. For the foreseeable future, DRAM demands will continue to grow with mobile devices as we increase the amount of memory in each unit. The coming explosion of IoT products numbering in the billions will all require some type of system DRAM to run, giving Micron and others a significant opportunity to grow. And we cannot forget about the power of the data center and, in particular, the AI compute market. NVIDIA might be the name driving the AI space but every processor it builds will require memory, and massive amounts of it.
In the NAND market for SSDs, there is a lot of competition. But Micron benefits from the OEM arrangements as well as the push into more vertical integration, selling direct to consumers and enterprise customers. Micron has made a push to counter the DIY and OEM dominance of Samsung SSDs with its own Crucial and Micron-branded options, a move that is improving with each generational release.
As more customers migrate from spinning hard drives in their PCs and servers to larger capacity solid state drives that are faster and more reliable, there remains a sizeable opportunity for memory vendors.
If demand will continue to increase, capacity remains the next question. When AMD was building its Vega GPU and utilizing a new memory technology called HBM2, the product suffered because of availability. Though Micron was not playing in the HBM (high bandwidth memory) space, it is a recent example of how the memory market is trying to play catch up to the various demands of technology companies.
There are additional fab facilities being built, but if it seems like they aren’t bringing them up as fast as they could, you aren’t alone. New fabs will alleviate capacity concerns but it will decrease pricing and lower margins, something that any reasonable business will be concerned about in volatile markets.
Over the decades of memory production, the market was cyclical. As technologies move from generation to generation, the demand would plummet, followed by higher prices associated with the NEXT memory technology. As use of that memory peaked and fell, the cycle would restart anew. But because of the growth and demand for memory products of all kinds, and the segments of extreme growth like AI and IoT, it looks like this pattern will be stalled for some time.