The arrival of 5G (fifth-generation) wireless networks is going to be a huge catalyst for Micron Technology's (NASDAQ:MU) mobile business, as the memory capacities of smartphones running on the next-generation network are expected to increase substantially.

The memory specialist sees a sharp increase in mobile dynamic random access memory (DRAM) and NAND flash storage across different smartphone tiers thanks to the huge data volumes generated by 5G networks and evolving technology. Entry-level smartphones are already rocking 48-megapixel cameras nowadays -- which demand more storage -- while DRAM usage has shot up thanks to resource-intensive applications like games.

Micron Technology has set its sights on this opportunity. It started sampling what it claimed to be an industry-first multichip package (MCP) combining fast flash storage with low-power DDR5 (LPDDR5) DRAM, which promises much faster data access speed with increased power efficiency. And now the chipmaker is all set to begin mass production of the multichip package. Let's see why this could be a big deal for Micron.

Person holding a 5G smartphone.

Image source: Getty Images

Micron's MCP platform solves a critical problem in 5G smartphones

The battery consumption of 5G smartphones is reportedly 20% higher than that of 4G devices. As a result, smartphone original equipment manufacturers (OEMs) need to increase the battery size and cut down on real estate elsewhere. Another problem with 5G hardware currently is that the devices need to be fitted with an additional chip that contains the 4G and the 5G modem. For comparison, 4G smartphones had an all-in-one SoC (system-on-a-chip) that included the modem.

The extra chip means that power consumption goes up, as in the case of Qualcomm's Snapdragon 865. So the space inside a 5G smartphone comes at a premium.

This is where Micron's latest memory product comes into play. The company pointed out in the press release that the new product "combines high-performance, high-density and low-power memory and storage in one compact package, equipping smartphones to handle data-intensive 5G workloads with dramatically increased speed and power efficiency."

In simpler words, smartphone OEMs can get both DRAM and fast NAND flash storage supporting the latest universal flash storage (UFS) 3.1 standard. The chipmaker claims that devices based on Micron's integrated platform "can save 55% of printed circuit board space compared to discrete solutions, meaning stand-alone versions of LPDDR5 and UFS." OEMs can go up to 12 GB DRAM/512 GB storage configurations with Micron's offering.

What's more, Micron says that the combined chip can extend battery life substantially, as LPDDR5 is 20% more power-efficient than the previous generation LPDDR4. Similarly, UFS 3.1 is 40% more power-efficient than the company's UFS 2.1 chip. Performance is also expected to get a nice boost with 20% faster download and write speeds for UFS 3.1, and 50% higher bandwidth for LPDDR5 DRAM.

Gauging the financial impact

The fortunes of Micron Technology's mobile business unit (MBU), which supplied nearly a fourth of the company's revenue last quarter, have started turning around of late. Though the business saw an 11% dip in revenue in fiscal 2020 (ending on Sept. 3, 2020) to $5.7 billion, its fiscal fourth-quarter revenue was up 4% from the prior-year period to $1.5 billion.

As LPDDR5 is expected to become the standard DRAM configuration for 5G smartphones thanks to higher data access speeds and lower power consumption, Micron should see an expansion of its addressable market. The integration of UFS 3.1 into the same package should ideally be another tailwind for the company, as that market is expected to record a healthy annual growth rate of 23.8% in shipments over the next three years, as per third-party estimates.

All in all, Micron Technology seems to be pulling the right strings to make a bigger dent in the 5G smartphone space, which is expected to take off big time as the technology is rolled out across the globe -- making Micron a top 5G pick that investors need to keep an eye on.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.