Micron To Benefit From Memory Shortages, Part V

| About: Micron Technology (MU)
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Here are a couple of updates on memory chip shortages and another brokerage report suggesting shortages and price increases. Previous articles in this series have looked at past chip shortages, brokerage estimates, and current examples of shortages and how all these might affect Micron (NASDAQ:MU). They are summarized in my previous article "Micron To Benefit From Memory Shortages, Part IV."

Analyst Report

HSBC published a brief report on April 15, 2013 titled "Memory Sector" in which they offer a price prediction for DRAM:

Expect a further increase of 18% in PC DRAM prices for next three month[s]: We think PC DRAM prices will continue to show an upward trend until the end of 2Q13, mainly due to: 1) Samsung Electronics and SK Hynix continuing to reduce PC DRAM capacity as they shift their focus to mobile DRAM, 2) Rexchip's expected shift of 50% of its capacity (currently has an 80k wpm capacity) to producing mobile DRAM by June, and 3) Micron's potential shift of the Singapore fab to NAND. We could see price increases of about 18% to USD30 by the end of 2Q13.

This is a second confirmation (suspicion?) that Micron is working to convert their Singapore DRAM fab to FLASH, as reported in my prior article, quoting Morgan Stanley's 4/8/13 report, which is the first mention where I've seen the Singapore fab nominated for conversion. This is a very important swing factor for Micron and for the industry: swinging this fab away from DRAM removes about 6% of the industry DRAM wafer capability from an already tight market.

Micron management remains a bit more coy about the possible conversion of any fab, as indicated in this Q&A interchange from the last earnings call (see page 7):

James Schneider - Goldman Sachs (NYSE:GS). First of all, you mentioned or alluded to the fact that you will be shifting some DRAM capacity to NAND over the coming quarters. Can you maybe give us anymore color on what the magnitude of that shift might be and in what facilities?

Mark Durcan - Chief Executive Officer and Director. We are not going to comment on particular facilities. And really what I intended to convey to you is that we were making steps to provide ourselves with flexibility to make those moves, but not necessarily a commitment to any particular timeline or magnitude of those changes. So I think what you will see is activity going on at Micron fabs in order to lay the ground work so that we have the flexibility to do that. In the short-term what that means is more engineering activity and a small amount of incremental tool installations and minor disruptions in ongoing operations, but no significant capacity decisions are made at this point.

More on Samsung (OTC:SSNLF) Shortages

Samsung's purchase of memory chips from Micron's acquisition target Elpida, and from competitor Hynix (OTC:HXSCF), has now been widely reported in the trade press. But this article puts some numbers to the size of purchase:

According to industry sources, Samsung Electronics has placed an order for mobile DRAMs from SK Hynix. The volume of the order is large enough to be used for about 10 percent of Samsung's annual smartphone outputs.

Given that Samsung aims to sell 300 million smartphones this year, the volume of mobile DRAMs Samsung ordered from SK Hynix is estimated at 30 million-40 million units.

If Samsung, the largest memory chip producer in the world is having trouble sourcing parts for 30-40 million phones, what must be happening in the rest of the market?

Foxconn Shortages

Foxconn is the largest electronics assembler in the world and handles most of Apple's (NASDAQ:AAPL) assembly work. Apparently even they are having problems in the memory market:

Foxconn Electronics reportedly has booked a portion of 512Mb DDR2 production capacity at Winbond Electronics with prices 15-20% higher than the prevailing market price in order to secure a steady supply of memory chips, according to industry sources.

The supply of 512Mb DDR2 chips has become increasingly tight as most memory chip makers have been allocating more of their capacity for the production of mobile RAM due to strong demand from the smartphone sector, the sources noted.


So in this booming market, we have the largest memory chip manufacturer in the world buying parts for 30-40 million phones from one of its competitors. And we have the world's largest electronics assembler having to pay a premium to secure its place in line. We even have a couple of Wall St. analysts bravely sticking their necks out to venture that Average Selling Prices of memory chips may continue to rise. We are living in interesting times.

Disclosure: I am long MU. 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.