Micron Technology (NASDAQ:MU) has gone from being a hero to a zero within a very short space of time thanks to the cyclical nature of the memory industry. Investors have been quick to abandon the chipmaker at the first sign of trouble to protect the massive gains the stock has given them over the past two years or so.
Micron, however, believes that the oversupply conditions in the memory market won't last beyond a couple of quarters, as customers are currently adjusting their inventory levels to account for the recent weakness in DRAM (dynamic random access memory) and NAND flash pricing. Micron believes things will get back to normal once the inventory adjustments are done.
There might be some merit to Micron's belief, as the memory industry is now sitting on a new set of catalysts that could prevent oversupply. Earlier, PCs and smartphones were the prime consumers of memory chips, but now there's a new avenue for the company to tap: self-driving cars.
A massive opportunity
The advent of autonomous features in vehicles is going to open up a big, big opportunity for Micron. That's because vehicles with higher automation levels will require higher memory bandwidth because they will have to process data from several sensors. In fact, Micron estimates that fully autonomous vehicles will have at least 40 sensors to capture their surroundings.
As a result, the bandwidth requirement in cars will go up exponentially to a range of 512GB/s to 1,024GB/s for vehicles equipped with Level 3 and Level 4 autonomous features. By comparison, Micron estimates that vehicles currently require less than 60GB/s of DRAM memory bandwidth, so demand for DRAM and NAND flash memory is going to increase big time in the long run.
The chart above shows that DRAM demand in autonomous vehicles is expected to increase nearly 10 times in the coming years, while NAND usage is expected to increase by more than 100 times once cars with Level 5 autonomy hit the road.
Major automakers and tech giants believe that they can attain Level 5 autonomy (the highest level of self-driving, in which a car is fully capable of driving itself) by the middle of the next decade. NVIDIA (NASDAQ:NVDA), for instance, claims that Level 5 cars will be on the road by 2025, while BMW believes that it will take just two years to come up with cars equipped with Level 4 and Level 5 autonomy.
Audi and Ford, on the other hand, believe that they can attain Level 4 automation as early as next year. Now, it remains to be seen if this will pan out, but progress is being made.
For instance, NVIDIA has released the world's first commercially available Level 2+ self-driving system, which will find its way into vehicles starting next year. So it won't be surprising if Micron's estimates of a boom in memory consumption come true in the long run. And if that happens, the memory specialist would be in a solid position to take advantage of this opportunity.
Micron's making its play...
There are only three major DRAM manufacturers and six NAND flash memory makers. Micron currently leads the automotive memory market, and it is already taking steps to consolidate its position.
Last August, Micron announced that it will be investing $3 billion by 2030 to boost memory production capacity at its Virginia plant, which caters to the industrial, networking, and automotive end markets. The company plans to bring the additional capacity into production in the first half of 2020.
The company has already struck partnerships with notable players in the self-driving space that should help secure its long-term growth. Micron and BMW, for instance, are partnering to develop next-generation memory for autonomous vehicles, while Intel's Mobileye has also selected the memory specialist's solutions to power the development of its fifth-generation self-driving platform.
Mobileye's fifth-gen EyeQ5 chip platform will tap into Micron's memory expertise to achieve its aim of putting fully autonomous vehicles on the road by next year. Whether Mobileye will succeed in meeting this ambitious target remains to be seen, but the fact that it has selected Micron as the memory supplier of choice bodes well for the latter.
That's because Intel has created a solid alliance of partners involved in the development of self-driving cars and is already supplying chips to some of the leading names in the industry.
...but don't expect quick gains
Micron is pulling all the right strings to make a dent in the self-driving car industry. Investors, however, should remember that this space is yet to gain a lot of traction, which is why they shouldn't be expecting any quick gains. The company is currently in a state of flux thanks to the development of oversupply conditions in the memory market, so it won't be surprising to see its stock remain under pressure in the near term.
However, autonomous driving has the potential to boost long-term growth by creating a lot of memory demand.
Check out the latest Micron Technology earnings call transcript.