- Micron is anticipating healthy industry supply-demand balance and robust profitability for both DRAM and NAND in the year.
- Amid rising market uncertainties, Micron and peers are judiciously controlling capex spend to maintain profitability.
- Server memory demand is robust thanks to significant capex spend by hyperscaler companies.
- DRAM ASP growth remains healthy amid hyperbole of spot price declines.
- This idea was discussed in more depth with members of my private investing community, Semiconductor Deep Dive. Learn More »
Now that Samsung Electronics (OTCPK:SSNLF) and SK Hynix (OTC:HXSCL) announced third quarter earnings, which followed a month after Micron (NASDAQ:MU), we can examine and compare DRAM and NAND results and metrics. Equally important, we can examine ASPs (average selling prices) of DRAMs, which has been the focal point of several downgrades starting from Morgan Stanley in mid-August and most recently by Cleveland Research on Oct. 25.
Supply-Demand Balanced by Capex Spend
Sanjay Mehrotra, President and Chief Executive Officer of Micron, noted in the company's recent earnings call:
“Given prudent industry capex and very lean supplier inventories, we expect healthy industry supply-demand balance and robust profitability for both DRAM and NAND in the year. Fiscal year ’22 DRAM equipment capex for manufacturing will decline from fiscal year ’21, as we benefit from the capital efficiency of our mature 1-alpha node. For fiscal year ’22, our bit supply growth will be achieved through node transitions alone, as we are a few years away from needing wafer start additions to keep up with the industry demand.”
David Zinsner, Senior Vice President and Chief Financial Officer, further noted:
“We expect capex to be in the $11 billion to $12 billion range, we were roughly a little bit less than $10 billion $9.7 billion in fiscal ’21. If you look at it by the elements of capex, we are going to invest more in pilot enablement this year, last year was a relatively low year for us in terms of pilot enablement. So that’s going to be a reasonable step-up in our capex spending. We feel capex equipment in DRAM will be down year-over-year. We think we made a good investment in fiscal ’21 and we don’t need to invest as much in fiscal ’22. So that will be down — NAND will actually step up pretty meaningfully in fiscal ’22 versus ’21. If you remember we took capex way down in fiscal ’20 boosted up a little bit in ’21. Now we’re up to kind of a full investment level in ’22 to support 176 layers, and that was caused because of this transition from floating gate to replacement gate when we made kind of a pause in terms of our capital investment to get the first line out at relatively minimal levels.”
Samsung executives reported in their Q3 2021 earnings call:
“We're maintaining our policy to invest flexibly in line with market conditions and given growing uncertainties, including those over component supply, we're carefully reviewing fourth quarter CapEx. And as such, we will not be providing a forecast for annual CapEx for 2021 at this earnings call.”
SK Hynix executives reported in their Q3 2021 earnings call:
“And regarding the capex, so it is based on these different thinking that we are currently reviewing various scenarios for the capex, but it has not been finalized yet. But we are aware of the increasing capital intensity in this industry, so we are currently planning to maintain our CapEx to revenue ratio at around mid-30% level.
So rather than competing on capex, we need to invest in the R&D for new memory or the next memory. And that is why it is very important for the company to secure profitability in both DRAM and NAND. But then such profitability, again, is for the sake of investing into the future, not simply to compete on CapEx or capacity but to better prepare for our future. So to answer your question, then yes, the company intends to remain profitability-centric for DRAM down the road. So the profitability centricity will remain regardless of the cyclicality.”
Table 1 shows my forecast of DRAM and NAND capex spend for the three companies analyzed, according to the report titled “The Hard Disk Drive (HDD) and Solid State Drive ("SSD") Industries: Market Analysis And Processing Trends.” The two major Korean chipmakers have turned conservative on capex, which appears to have been guided by concerns over demand uncertainties.
Micron last month reported that ASPs increased QoQ in the high-single-digit percentage range in F4Q21 vs. up 20% in F3Q21, as shown in Chart 1.
Samsung reported 3Q21 blended DRAM ASPs increased QoQ in the high single digit percentage range versus up high-teens in 2Q21
SK Hynix reported ASP increased QoQ in the high-single-digits in 3Q21 versus up 18% in 2Q21.
In Chart 2, I present DRAM bit shipments. Micron reported QoQ bit shipments growth in the low-single-digit percentage which compares to a low-single-digit percentage in F3Q21. Micron expects DRAM bit demand to grow in the "mid-to-high teens" in 2022.
Samsung reported that DRAM bits shipped grew in the low single-digit percentage range in 3Q21. Samsung expects 4Q21 DRAM industry bit shipments to be flat QoQ, and expects 2021 DRAM industry bit ship growth in the mid-20% range YoY.
SK Hynix reported 3Q21 QoQ DRAM bit shipments up low single digits percentage range vs. middle single digits percentage in 2Q21. SK Hynix expects 4Q21 QoQ DRAM bit shipments to be up in the mid- to high-single-digits percentage range. SK Hynix expects 2021 industry DRAM YoY bit growth of low-to-mid 20%.
Micron’s DRAM revenue was $6.09 billion compared to $5.45 billion in F3Q21and $4.37 billion a year ago. This represents a QoQ growth of 12% and YoY of 39%, as shown in Chart 3. Micron guided DRAM revenue of $7.65 billion-plus or minus $200 million for FQ1 2020. Total FQ4 revenue was approximately $8.3 billion, up 11% QoQ, and up 37% QoQ.
Samsung reported 3Q21 QoQ DRAM revenues of +10%.
SK Hynix reported 3Q21 DRAM QoQ revenue growth of +8%.
Micron’s CEO Mehrotra pointed to significant tailwinds in 2021:
In the data center, integration of AI into data-centric workloads will drive long-term growth, with memory and storage becoming an increasing portion of server BOM cost. In FQ3, data center DRAM revenue grew quarter-over-quarter, driven by strong demand from cloud customers and increases in module density. Data center SSD bit shipments and revenue grew sequentially, driven by both cloud and enterprise. Data center demand is expected to be strong in the second half of calendar 2021 as cloud demand picks up and enterprise demand improves due to broad economic recovery.
Mobile unit sales are expected to show healthy growth this year, with some variability across geographies, driven by an expected doubling of 5G units in calendar 2021 to more than 500 million units. These 5G phones also feature rich content demanding significantly higher DRAM and NAND.
Its automotive business delivered a third consecutive record quarter, driven by continued manufacturing recovery and increased LPDDR4 and eMMC content for in-vehicle infotainment and driver assistance applications. Auto memory and storage content growth trends remain strong, particularly as EVs, which have significantly higher memory and storage content requirements, grow much faster than the broader auto market.
The PC market continues to benefit from the trend toward greater mobility as people embrace a work or learn-from-anywhere culture. Industry expectations for calendar 2021 PC unit demand growth have increased to the high teens, driven by robust notebook sales and a recovery in the desktop market.
Micron’s stock has underperformed the market so far this year. Shares of the company have tumbled big-time in the past few months as doubts about a sustained recovery and spot prices resulted in some misguided forecasts and downgrades, as shown in Chart 4.
Chart 5 shows a comparison of the three companies based on Profit Margin percentage change for a 5-year period. During the period of the "hyper memory cycle," Micron's EPS grew significantly greater than Samsung and SK Hynix.
This free article presents my analysis of this semiconductor sector. A more detailed analysis is available on my Marketplace newsletter site Semiconductor Deep Dive. You can learn more about it here and start a risk free 2 week trial now.
In my Semiconductor Deep Dive article, I also include and analysis of the NAND sector.
This article was written by
Robert Castellano has 38 years of experience analyzing the semiconductor markets.He runs the investing group Semiconductor Deep Dive. It provides investors with recommendations for stocks with the greatest near- and medium-term growth potential. Members receive detailed analysis and research tools to make investments in semiconductor and tech stocks. Learn more.
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