There has been a lot of debate recently over whether Apple iPad and the slew of tablets on deck are hampering PC and notebook demand. The data is largely inconclusive for now. However, Micron Technology CEO Steve Appleton sees some substitution effect.
On Micron’s fourth quarter earnings conference call (transcript), Appleton noted that the PC demand outlook for the fourth quarter has come down. That’s not too surprising given profit warnings from the likes of Intel and AMD, but Micron (NASDAQ:MU) has interesting perspective as a memory producer. PC makers are cutting back on their fourth quarter optimism.
Click to enlargeThe big question is whether tablet demand has anything to do with slowing PC demand. In many ways, you could argue that tablets like the iPad represent netbooks done right. And it’s not surprising that tablets may be stealing a few notebook sales—even though tech executives are skittish about making any proclamations. Piper Jaffray analyst Gene Munster has already referred to the iPad as the Mac for the masses. Not all of those iPad sales will be incremental.
We did see softening towards the end of our fourth quarter in our notebook, desktop, commodity DRAM businesses and forecast through the back half of this calendar year.
It appears that some of the demand is being driven by unstable consumer sentiment.
Some of the softening in the desktop and notebook space, I think, can also be attributed to the success of the tablet PC category. And the smartphone segment is also growing.
For Micron, the popularity of tablets is a bit tricky to navigate. Sure, more devices means more memory consumption. However, tablets consume memory in smaller chunks. Appleton said that it is seeing weakness in PC memory, strong memory demand in tablets and strength in servers. Appleton outlined the dynamic:
The stronger that tablet PCs are, the more pressure it puts on DRAM because less bits consumed in those compared to some of the more traditional notebooks or desktops. I think there is some there is some truth to that, although we also believe there’s some incremental demand that comes from that.
But the real win for Micron may be the memory consumption on servers. As more tablets are sold, more data resides in the cloud and on remote servers. Those servers need memory. Appleton continued:
There’s a much greater preference to interact with the network on an iPad than there is on the iPhone, and it is probably even if they have both, for obvious reasons, because of the quality of the display, etcetera.
Every time that that happens, it means that more data has to be moved and stored somewhere, and the more that that happens, the more servers, the more networking, the more infrastructure you need in order for that to happen.
Oddly enough, the infrastructure business is better and actually pretty good compared to what we’re seeing happening in the PC business. So there’s a balancing act that happens there.
Micron seems to be balancing the cross currents relatively well, but its fourth quarter earnings of 32 cents a share on revenue of $2.49 billion fell short of Wall Street expectations.