Micron's (MU) stock rose to its highest levels since mid-2018 Thursday, after the memory giant used its latest earnings report and call to say that it expects business conditions to gradually improve over the course of 2020.Following Micron's call, I had a chance to talk with CEO Sanjay Mehrotra about current business trends, along with a couple of other things. Here's a recap of notable comments that were shared.
DRAM Pricing Trends
Though Micron is guiding for its DRAM average selling price (ASP) to decline by a high-single digit percentage sequentially this quarter (following big declines in the prior months), Mehrotra suggested this outlook has much to do with seasonal demand weakness, and reiterated that Micron expects pricing trends to improve over the course of 2020 thanks to reduced supply growth (the result of major capital spending cuts) and healthy end-market demand."[The] end-market demand drivers, beyond the seasonality of calendar Q1, continue to point to healthy demand trends, this is what gives us optimism," he said. "The calendar year 2020 supply and demand balance will be a tailwind for the industry."
DRAM and NAND End-Market Demand
Not too surprisingly, given the recent improvement in cloud capital spending as well as the steady growth seen in the amount of DRAM used by the average cloud server, Mehrotra says Micron expects cloud DRAM bit demand to grow faster in 2020 than Micron's industry-wide forecast for mid-teens demand growth. He added that cloud DRAM bit demand has been growing at a 20%-plus compound annual rate in recent years, and noted that cloud demand for NAND flash memory is likewise growing faster than industry-wide NAND demand growth.
Graphics DRAM bit demand (due to benefit from Microsoft (MSFT) and Sony's (SNE) 2020 game console refreshes) is also expected to be above-average, as is automotive demand. Enterprise server DRAM bit demand growth is expected to be "around the industry average" in 2020, with higher DRAM content per server helping offset sluggish server demand, as is mobile demand.PC DRAM bit demand growth (pressured by Intel ( INTC) CPU shortages) is expected to be below-average. However, Mehrotra was upbeat about the PC industry's NAND consumption growth, thanks to rising SSD penetration rates and average capacities.
DRAM Supply Growth Expectations
Mehortra said Micron's outlook for 2019 DRAM industry bit supply growth is unchanged from September. Then, CFO Dave Zinser indicated Micron expects to see low-to-mid teens 2019 supply growth.Separately, in its earnings slides, Micron said it expects 2020 DRAM bit supply growth to be "somewhat less" than demand growth forecast to be in the mid-teens. In September, the company forecast mid-teens 2020 supply growth.
Micron's Latest Acquisition
When asked about Micron's recent acquisition of deep learning hardware/software startup FWDNXT (pronounced forward-next), Mehrotra said FWDNXT's technology "gives us a platform to better understand" how customers are performing inference (the running of trained AI/deep learning models against real-world user data and content) at the network edge. He added that this knowledge will help Micron craft better memory solutions for the fast-growing inference market.FWDNXT's platform pairs Xilinx ( XLNX) FPGAs with proprietary hardware IP and software to handle inference workloads such as speech recognition, text translation and machine vision. The edge inference processing market is pretty competitive, with Xilinx, Nvidia ( NVDA) and Intel (among others) going aggressively after the space. But all of these offerings will still need DRAM to work.
3D XPoint Expectations
Mehrotra said Micron is "excited" about the customer reception it has seen for its recently-launched X100 SSD. The X100 relies on the 3D XPoint (pronounced 3D cross-point) next-gen memory technology Micron co-developed with Intel -- it attempts to strike a middle ground between DRAM and NAND in terms of performance, cost and density -- and is declared to be the fastest SSD in existence.
At the same time, Mehrotra once more tried to temper near-term revenue expectations for XPoint products, indicating it will take a "few years" for them to become a meaningful portion of revenue as Micron works to qualify products with customers and build out software ecosystem support. He also reiterated that Micron's unique status as a supplier of DRAM, NAND and XPoint is a competitive strength that it wants to leverage."Having the whole toolkit for them is a huge benefit in terms of having close dialogue with the customers," Mehrotra said. On the call, he once more indicated that Micron is looking to eventually launch ( as Intel did last year) main memory solutions featuring 3D XPoint.
Though China has shown a strong interest in growing its local chip industry and Chinese chipmaker ChangXin recently began mass-producing DRAM, Mehrotra, whose company gets over two-thirds of its revenue from DRAM, downplayed the near-term impact that Chinese firms will have on the DRAM industry.
Micron has accounted for Chinese production in its DRAM supply growth forecasts for the last few years, Mehrotra noted, and every year timetables have been pushed out. "I do not see them becoming a meaningful contributor to the industry at least over the time horizon of the next few years," he said.
Like others, Mehrotra asserted barriers to entry for the DRAM industry, which has consolidated to a large extent around Micron, Samsung and SK Hynix, remain high. Would-be entrants not only need to obtain the economies of scale needed to be cost-effective, but also need to support leading-edge manufacturing processes and develop quality products tailored for end-markets such as phones, servers and cars. ChangXin's initial output, it should be noted, relies on a 19-nanometer manufacturing process that's less advanced than Micron, Samsung and Hynix's leading-edge process nodes.