As the fall in DRAM and NAND prices may affect Micron's earnings



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Micron in the NAND market

Micron Technology (MU) is a pure memory chip manufacturer that receives 64% of its Dynamic Random Access Memory (DRAM) and 30% NAND (negative AND) revenue. NAND is a storage chip and its demand is price sensitive. Micron is the third largest NAND chip maker, after Samsung, South Korea's (SSNLF) and Japan's Toshiba, with a market share of 15.4% in the first quarter, according to the DRAMeXchange.

As the fall in DRAM and NAND prices may affect Micron's earnings

NAND prices have been dropping since last year, as most chip makers transitioned from NAND planar in 2D to 3D NAND, which has created a situation of oversupply. According to the DRAMeXchange, all NAND ASPs (average selling price) of NAND chip makers fell between 20% and 30% in the first quarter and should continue to fall in the second quarter.

In the first quarter, Micron's revenue at NAND fell 18% sequentially, while Samsung and Toshiba revenue at NAND fell 25% and 20.2%, respectively. Micron performed better than its competitors because of its cost leadership and product mix.

Micron in the DRAM market

DRAM is the memory of a device and an important component that determines the performance of a device. Thus, DRAM demand is not price sensitive. However, the DRAM market faced a situation of oversupply in the second half of 2018. This situation was exacerbated by the fall in demand from the server market, the graphics card market was hit by excess inventory of the cryptographic bubble and the Intel faced a CPU processing unit) supply shortage.

According to the DRAMeXchange, DRAM prices fell nearly 30% in the first quarter, marking the sector's biggest decline since 2011. Micron's DRAM revenue declined 30% sequentially in the second fiscal quarter of 2019, while DRAM Samsung and SK Hynix fell 26.3% and 31.7%, respectively. Here, Samsung has a cost advantage over Micron, which helped the former to mitigate the impact of the fall in DRAM prices.

Micron and other memory chip makers have reduced their output to match the industry's supply to demand and reduce price declines. However, Huawei's ban is pushing down memory demand, delaying chip makers' efforts to balance demand and supply and stabilize memory prices. The larger-than-expected decline in DRAM and NAND prices will reduce Micron's DRAM earnings forecast for the fourth quarter of fiscal year 2019.

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