Technology stock

Micron Technology Stock: Powerful Memory Drivers through 2022 (NASDAQ: MU)

RUNSTUDIO/DigitalVision via Getty Images

Micron technology (NASDAQ: MU) is ahead of Samsung Electronics (OTC:SSNLF) and SK Hynix in mass production of advanced DRAMs and NAND ICs. Micron currently supplies 1α nm DRAMs to AMD and Acer. Micron began mass-producing 176-layer NAND flashes for the first times around the world in November 2020.

Samsung Electronics and SK Hynix have not yet started mass production of 176-layer NAND panels, although the two companies have said they will be able to mass-produce 176-layer NAND flashes in the second half of the year. 2021.

Micron’s CEO on the fiscal third quarter earnings call highlighted significant tailwinds in 2021:

“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 year 2021 to over 500 million units. 5G phones also feature rich content, requiring significantly higher DRAM and NAND, and we’re also encouraged to see bold OEM innovation in new devices like gaming smartphones with 18 gigabytes of DRAM.

In the data center, integrating AI into data-centric workloads will drive long-term growth, with memory and storage becoming an increasing part of the cost of the server BOM. In the third quarter, data center DRAM revenue increased quarter over quarter, driven by strong demand from cloud customers and increased module density. Data center SSD bit shipments and revenue increased 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 accelerates and enterprise demand improves due to a broad economic recovery.

This article discusses these two main drivers of DRAM and NAND growth, showing the continuity of the memory cycle. It follows my August 16 Seeking Alpha article titled “Micron Technology: Winter May Be Coming, But Not This Year Ni The Next,” in which I took issue with Morgan Stanley’s claims about the end of the memory cycle.

DRAM Demand Smartphone and Servers

Chart 1 shows DRAM demand by quarter for the top three applications, PC DRAM, Servers, Mobile DRAM and Others. Extraordinary PC demand (yellow bar) during work/study/home orders associated with the Covid pandemic is shown in 2020 which continued into 2021. DRAM content per PC will increase from 5.5 GB in 2015 to 14GB in 2023, a 2.5x increase over that period.

Chart 1

Mobile DRAM bit shipments will nearly double between Q1 2020 and Q4 2021 to just over 2,000 8GB equivalents.

Chart 2 shows that while smartphone shipments between 2018 and 2025 will be stable, 5G will be a catalyst for growth. These 5G phones feature rich content requiring significantly higher DRAM and NAND. By 2025, 5G smartphones will account for almost 80% of all smartphones.

Chart 2

Chart 3 shows the DRAM content for 2021 smartphone models. It also shows the evolution of DRAM content over the past six years. In 2021, three models have 16 GB, while some lower-end models have between 6 and 8 GB.

Also note that until 2019 the smartphone models listed were high end high end, while in 2021 I have selected the top selling models, some of which are lost cost models.

Chart 3

Cloud Servers/Data Center

Data stored online on the Internet so that users can access it online when needed is called Cloud. Data center is otherwise known as on-premises service where software and applications are stored locally in the system.

Chart 4 shows the combined capital expenditures of the top seven server companies from 2017 to 2021, according to The Information Network’s report titled “Hot ICs: A Market Analysis of Artificial Intelligence, 5G, CMOS Image Sensors and Memory Chips“Investments, which increased by 52% in 2018, decreased by 1.8% in 2019 before increasing by 32% in 2020. In 2021, I expect investments to increase by 20%. Investments are a combination integrated circuits, computers and real estate leases.

The increase in cloud server shipments in 2021 continues the strong growth in 2020 that was the result of work/study/stay-at-home orders that forced businesses, workers and students to move to high-volume demanding technology bandwidth, such as videoconferencing.

Chart 4

Chart 4 also shows Amazon’s (AMZN) strong capital expenditure (grey bar). Amazon chief financial officer Brian Olsavsky told analysts on an investor call for its latest quarterly report that the company had increased its logistics capacity by 50% in the past year alone. This expansion was likely a prelude to Amazon’s recent announcement that it was opening large department store-like retail stores.

The processor companies Advanced Micro Devices (AMD), Broadcom (AVGO), Intel (INTC) and Nvidia (NVDA) sell processors for both types of servers – data canter and cloud. Table 1 presents the revenues of the main processors, which are generally part of their data center group.

Key takeaway for investors

For memory, I expect continued growth in server and mobile demand, driven respectively by the increasing adoption of new processors (Intel Ice Lake and AMD EPYC Milan) for servers and the release of new smartphones with greater DRAM and NAND content.

ASP increases for DRAM and NAND combined with cost reductions resulting from the expansion of the edge part of the processes (1x nm DRAM, 176-layer NAND) contribute to a significant improvement in the bottom line for manufacturers.

For servers, in addition to regaining business investment sentiment, new build releases at OEMs have increased due to the release of Intel and AMD processors. Data center demand remained strong, supported by strong demand for the cloud.

Additionally, the continued stay-at-home trend has kept PC demand high, while education demand for Chromebooks has also surged ahead of a new school year. The PC market is expected to see shipment growth of more than 10% for the second consecutive year. Following PC demand for education PCs, it will be business PCs that will drive demand in the second half of 2021.

The demand for mobile memory is increasing, linked to the trend towards high memory density linked to the expansion of 5G and the launches of new models from major manufacturers.

DDR5 has some cost-increasing factors over DDR4, including die size overhead as well. This can act as a constraint in terms of overall bit growth. In other words, the increase in die size of DDR5 should be seen as downward pressure on bit supply growth.