Shares of memory maker Micron (NASDAQ:MU) have performed poorly year to date, with the stock losing more than half of its value since the beginning of the year. The company has faced a number of issues, including a challenging PC market as well as stiff competition from other memory giants such as Samsung and SK Hynix.
Micron's Investor Relations chief, Ivan Donaldson, recently presented at the Deutsche Bank 2015 Technology Brokers conference, and as a (suffering) Micron investor, I found it particularly interesting. Here are three points that I think should be of interest to any current and potential Micron investors.
Getting an initial view of the PC market in 2016
Although Micron has done a good job diversifying its DRAM business into healthier end markets such as servers and mobile, the reality is that more than 30% of the company's DRAM business is still tied to the PC market. This means, for better or for worse, the company's financial performance will be materially affected by the health of the PC market.
During the conference, Donaldson indicated that Micron "doesn't expect anything spectacular" with respect to the PC market during 2016, but that he does think that things will "be better."
Although Donaldson says that Micron's long-term view of the PC market is still "pretty flat unit growth," he did point out that this year was abnormally bad, with unit sales down by as much as 10% and build activity down even more than that (as inventory was burned).
This, Donaldson pointed out, means that next year there could be some "inventory replenishment" with respect to PC builds and that ultimately things are looking better for 2016.
NAND margins set to move up from here
During the call, analyst Sidney Ho pointed out that Micron's margins in NAND flash are significantly below those of its competitors. The analyst then asked Donaldson to go over some of the factors that Micron expects to help push those margins higher.
Donaldson said that Micron continues to improve both its product mix as well as its end-market mix and that the company is "doing that every quarter."
He also pointed out that the company is selling less NAND into the "transactional channel market" and is focusing more on providing NAND flash into mobile devices as well as selling its own branded solid-state drives that use its own NAND. Since Micron can provide more value than just simple NAND with these products, margins on those sales should be better.
Donaldson also pointed out that Micron that a major contributor to Micron's relatively poor NAND margins has been the fact that it has been shipping products utilizing multilevel cell (or MLC) NAND into markets in which its competitors are shipping cheaper triple-level cell (or TLC) NAND.
"So the challenge we have had is we are selling really high performance MLC into some segments that just frankly won't pay us for it," Donaldson admitted. "So they are paying TLC prices if you will for MLC performance and that's what we need to fix."
How about that nifty new 3D XPoint technology?
During the conference, Donaldson also talked about the new technology that Micron and its partner, Intel, just announced known as 3D XPoint.
This technology, as you might recall, is a type of nonvolatile memory (i.e., it retains data after power is removed) that is much cheaper to make than traditional DRAM but is significantly faster than NAND flash.
Donaldson says that Micron expects, at least during the first few years of adoption, that 3D XPoint will be incremental to the company's existing DRAM and NAND businesses. However, he did indicate that out in time, 3D XPoint could "cannibalize some longer term markets that DRAM or NAND might address."
Here's how Donaldson says that Micron views this potential cannibalization:
Our view is, hey, we would rather have at least half of that incremental market that might cannibalize some of the existing market as opposed to, what's our market share in DRAM? 25%? And our market share in NAND is kind of in the teens. So, we feel pretty good about having the new technology going forward even if there is some potential crossover in the two different markets.