Seeking Alpha
Value, long/short equity, special situations
Profile| Send Message|
( followers)  

Micron (NASDAQ:MU) mentioned these magic words in their earnings conference call last Thursday:

Channel inventory is very tight and we are currently in allocations to several channel and OEM customers. the DRAM supply and demand balance appears to be favorable and we are well positioned to capitalize [on] that going forward. [Page 6 of call transcript on SA]

That sent me to Google to search "NAND shortage" and "memory chip shortage", which I highly recommend for those long Micron. I was unaware of the term "chip famine" and only dimly remembered the event by that name in 1988, or what the effects were of the Fukushima tsunami on the memory markets.

Among the highlights: this article from November of '12, which explains the relationship of spot and contract pricing, which has an excellent chart that needs updating. It shows NAND pricing falling from ~$1 per Gb to $0.31 last July. If my math is correct, we are back up around $0.80 in the spot market now, according to DRAMexchange.com.

SSD maker OCZ announced chip shortages back in September of 2012. They also had a trading halt when they missed revenues on their inability to obtain chips.

And here was a very cogent explanation on why chip companies are reluctant to make new FLASH fab investments, with the next big thing in non-volatile memory "just around the corner" (as its been for a decade or so). Micron's CFO Ronald Foster basically said the same thing (on reluctance to spend more now on conventional FLASH) with work being done on 3D:

But beyond that most of the competitors are working on 3D and you know there is just a big mismatch in the type of capacity you put in place for 3D versus what you put in place for those end of life planar technologies. And so I think people are going to be pretty circumspect about how much capital they go spend on their capacity over the next couple of years while their prepping for a 3D transition sometime out in 2015-2016. [transcript, page 7, answer to Credit Suisse]

Wild things can happen on pricing, like this quadrupling of a quaint little 1Mb chip over a few months back in 1988. The article states the chip went form $16 to $60 in a few months.

So we are in for an interesting ride with Kip Beddard of Micron stating they are the largest factor in SSD's. And with the earnings transcript (page 5) stating that SSD shipments were up 40% in the 2Q over the 1Q and consumed 20% of Micron's 1.1Billion gigabytes of NAND trade sales in the quarter. How many quarters of that sort of growth by the largest player in the SSD niche do we need before things get REALLY interesting?

As Russ Fischer has written here on SA, I too am very interested in what comes next in non-volatile memory and the role Micron will play. For the time being, I am happy to be on this ride and await the close of the Elpida acquisition and the next major leg up.

Source: Micron To Benefit From Memory Shortages?