From EE Times Asia - mad2
Analysis: Can Micron hold on to its good fortune?
Posted:06 Jul 2010
In just one year, Micron Technology Inc. doubled its quarterly revenue, turned a $300 million net loss into a $940 million net income, splurged on what has turned out to be an extremely profitable acquisition—albeit only on paper for now—and appears poised for more giddy growth over the next year.
With pricing trends remaining positive and unit shipment continuing strong, Micron executives see only bright and sunny days for the immediate future. Analysts have also said the company's quarterly sales will improve not only year-over-year—a normal expectation in a recovery—but on the average the forecast calls for double-digit sequential growth for Micron's fiscal fourth quarter ending August 10.
Not even Apple Inc., the doyen of technology turnarounds, can lay claim to numbers as amazing as the ones Micron is forecast to post by the end of its current fiscal year. The company's annual sales are expected to climb 80 percent to $8.64 billion in fiscal 2010 from $4.8 billion in fiscal 2009 and then shoot up to $10.9 billion in fiscal 2011.
After three years of losses, the company is seen reporting strong profits for fiscal 2010 and 2011. The losses of the last years as well as the savage sales declines are fading into distant memory.
"We feel the market will trend to higher density chips and that bit consumption will continue to grow throughout 2010. We remain optimistic that market segments such as mobile, consumer electronic devices such as tablets and the SSDs (solid-state drives) will drive demand for higher cycling performance requirements," said Mark Adams, VP of worldwide sales at Micron during the company's recent conference.
Such wild swings are not only expected but have become a normal feature of the DRAM and flash memory market. It's both a blessing and a curse for the memory market, a segment that appears to have too much in common with deep sea king crab fishing; sometimes you hit the mother lode and return with a huge catch while at other times the nets just keep coming up empty with the raging sea threatening to lop off limbs or even sink the boat. Memory manufacturers have not had it so good in years.
For once, all the elements—pricing, inventory, demand, production capacity utilization and even consumer sentiments—appear perfectly lined up. Micron is on a roll, hauling in amazing profits on surging demand, rising capacity utilization, strong volume shipment growth, rising average selling prices, lean supplies across the market and even tighter inventory management by distributors, OEMs and even retail outlets.
"As we come to the end of our fiscal 2010, we are encouraged by the strong demand signals across our channel segments," added Adams. "Our customers continue to seek expanded supply partnerships with us as we continue to lead from a technology and portfolio scale perspective. We see the demand-supply equilibrium in the memory business continuing to work in our favor as we look for continued strong operating performance going forward."
Chronic demand, supply imbalance
The positive conditions Micron executives pointed out during their fiscal Q3 conference call mask one ugly fact; the memory market is still seriously infected with chronic case of demand and supply imbalance.
For now, the pendulum has swung effectively in the direction of parts suppliers, depriving OEMs of the pricing advantages they enjoyed during the years of overcapacity and overproduction when huge losses piled up at component vendors.
Soon, however, OEMs will begin to seek ways to reverse or at least partially reduce the pricing pressures they now face. Whatever actions they take now or in future will invariably lead the industry back to its boom and burst cycle as memory component vendors cave in to OEM supply chain constraints by again jacking up production.
For Micron especially, the good times may last no longer than another year or two, which means executives at the company must start worrying again and preparing soon for another downturn or, in a best-case scenario, less than stellar expansion in a market marked by staggering uncertainties, wild price swings and huge capital expenses. It begs the questions: who would want to play in such a market and can anyone calm this storm?
Even as Micron celebrates its good fortune for the fiscal Q3, the elasticity of the market and its inherent unpredictability remains a major problem for the memory vendors, their OEM customers, suppliers and investors. It's a market that has become a graveyard for many unwitting semiconductor vendors while even those that managed to exit the sector are both humbled and hobbled by the experience for years.
As if to emphasize the cloudy nature of its business, Micron declined to offer any revenue guidance for the current quarter or further ahead. One unstated reason for this is that the company is moving forward to expand production of some next-generation products while try to strike the right balance in the production of NAND and DRAM as well as between lower- and higher margin products.
In the meantime, Micron, according to Adams, the head of sales, remains wary about the current expansion, noting "we're not sitting here in the most robust economy. It is better than in 2009 but people still have the memory of running through the working capital strains of that time period and they are pretty efficient on supply chain and probably a little bit more risk averse than they were a year or two back."
The result is that inventories are low across the industry, helping to push up prices and creating further imbalances in the supply chain as companies manage to immediate demand and production needs rather than focus on longer term requirements.
Lead times across the technology equipment market is being negatively impacted by tightly-timed production systems that OEMs and component suppliers have instituted in response to concerns about ending up with unwanted inventories, iSuppli Corp., said in a statement in which it warned "various key commodity electronic components now are in a state of critically short supply."
The memory sector is less impacted, iSuppli noted but the system remains inefficient, according to the researcher. "When lead times enter the 20-week range, they indicate a major schism between component supply and demand," said Rick Pierson, an analyst at iSuppli.
"The situation is slightly calmer on the memory IC front, where expected future demand and inventory rebuilding efforts are being balanced off by currently soft sales as well as falling prices," iSuppli said. "Nonetheless, troubling signs point to possible severe shortages in NAND flash during the third quarter, especially if suppliers are unable to achieve an optimal mix in production."
Optimal mix in production? That's a worthy goal but one that has always eluded the memory IC market. There are no indications the industry is any closer to finding the right formula for achieving that target.
- Bolaji Ojo
EE Times
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