Micron Technology (NASDAQ:MU) has announced an addition to its solid state drives to provide the support crucial for storage applications that need data access. The product is directed at data center appliances and enterprise storage platforms. In this article, I want to demonstrate why the growing market in the solid state industry will not positively affect Micron. I particularly want to look at why Micron's initiative in the solid state industry will not improve its price multiples.
Why will Micron's solid state drive not improve its price multiples? It is true that the market for the solid state industry will grow in the next three years. According to the above research result from HIS iSuppli Research, a respected industry watcher, the sale of solid state market will rise from around $10.8 billion in 2013 to about $20 billion in 2016. Another research firm, SSD Guy, forecasted that the enterprise SSD market will hit $4 billion in revenues by 2016, nearly six times that of 2011, while unit shipments will increase by ten times to around 4 million units.
Unfortunately for Micron, competition in the solid state drive market is intense. Low barriers to entry enable numerous companies to join the industry. Of course, companies having lucrative supply agreements for NAND have advantage over the competition. But this is not to say the competitor can't compete. Sure, Micron's SSD revenue was up 33% in 2012 fourth quarter- with unit shipments up over 50%. But the competitive trend in the solid state drive sector will not enable the company to generate enough sales to improve its total revenues.
The chart reveals a company that is flat-lining. Its revenues rose in 2010 but it has now decreased into the 2012 fourth quarter. Micron recently announced results of operations for its second quarter of fiscal 2013. Its SSD revenue was up 33% in the quarter, with unit shipments up over 50%. Revenues from sales of DRAM products were 24 percent higher compared to the first quarter of fiscal 2013, due to a 38 percent increase in sales volume. Revenues from sales of NAND Flash products were 8 percent higher in the second quarter of fiscal. Despite this improvement, the company recorded a net loss of $286 million on net sales of $2.1 billion. This compares unfavorably to a net loss of $282 million on net sales of $2 billion for the second quarter of fiscal 2012.
"We were pleased with the overall improvement in our operational performance and excited to see the effects of our restructured partnership with Inotera drive bit shipment growth during the quarter. We believe the resultant increase in capacity from existing industry production will provide us the scale we need to reinforce our leadership position," said Micron CEO Mark Durcan.
Micron announced that first quarter revenues from sales of NAND Flash products were 4 percent lower in the first quarter of fiscal 2013 compared to the fourth quarter of fiscal 2012. Revenues from sales of DRAM products in the first quarter of fiscal 2013 were 9 percent lower compared to the fourth quarter of fiscal 2012 results. The company recorded a net loss of $275 million on net sales of $1.8 billion. The results were only marginally better when compared to a net loss of $243 million on net sales of $2.0 billion for the fourth quarter of fiscal 2012.
Micron announced results fourth quarter and 2012 fiscal year, which ended August 30, 2012. For the fourth quarter, the company had a net loss of $243 million on net sales of $2.0 billion. Revenues from sales of NAND Flash products were 12 percent lower in the fourth quarter of fiscal 2012 compared to the third quarter of fiscal 2012. Revenues from sales of DRAM products were 9 percent lower compared to the third quarter of fiscal 2012.
"In 2012, despite difficult market conditions and lower average selling prices, we continued to execute on our technology and manufacturing roadmaps and moved our products increasingly into premium segments. Our focus throughout 2013 is to drive additional cost reductions and advance our leading-edge memory technology to achieve increased manufacturing efficiencies," said Durcan.
Micron's Solid state drive initiative
Micron's solid state drives include Enterprise SATA SSD, a product that provides data protection with reliable and superior components. Enterprise SAS SSD also provides reliable and enduring services for data protection. Client SSD brings groundbreaking performance and is OEM reliable, enabling easy HDD replacement. Enterprise PCIe SSD provides high performance and endurance to networks.
The just-released solid state drive product is preferred in many applications because it offers qualities that customers expect from a SAS drive. It also provides low latency and balanced read/write performance crucial for handling the numerous workloads of persistent data storage.
"With this introduction, Micron has one of the most comprehensive lines of enterprise-focused SSDs-we have solutions for every interface and usage model," said Ed Doller, VP and general manager of Micron's Enterprise SSD division. "The P410m gives our customers a reliable SAS SSD that delivers high performance and data assurance at a competitive price point."
Obviously, solid state drive products are crucial to Micron in 2013. Unfortunately, this line of product, though growing with time, is not enough to make Micron gain a head start over its rivals.
When we relate the solid state drive sector to the company's recent reports, we saw some growth. Its revenues increased in the second quarter 2013 and third quarter 2012. But along with improved NAND and DRAM sales, it has been unable to prevent Micron from losing money. It is clear the company has not been improved in comparison to its 2012 reports, so it cannot be said that the company is operating at an optimally efficient level.
And how is Micron performing in relation to others? With a gross margin of 17.61%, compared with 51.75% for IBM and 27.69% for Western Digital (NYSE:WDC), and earnings per share of -1.12, compared with 14.37 for IBM, Micron is not a better investment than the others. IBM's SAS-bay-based solution is also more superior to Micron's new solid state drive. This is because it is using high performance controllers and is perhaps the most versatile option available today. Western Digital's Silicon Drive 11, A100, and U100 is more functional than Micron's product. They have advanced solid state storage features that enhance performance and reliability. Leveraging on different technologies, they deliver the industry's most reliable advanced storage solutions.
Looking at the previous performance of Micron's solid state drive, and the intense competition from rivals, we can say that sales of the company's new solutions will not be sufficient to improve price multiples. Of course, the stock's price is currently appreciating on the market, but it is not a good buy in the long-term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.