Micron Reorg Focuses on 4 Key Businesses

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Micron Technology has streamlined its organization with a new business structure aimed at serving a more diversified set of end markets.

The memory chip powerhouse will engage its customers through one of four new business units -- computing and networking, mobile, storage, and embedded. In addition, Micro has set up three engineering groups, including DRAM, non-volatile memory, and advanced control development to "help deliver the right customer and market specific products," said Mark Adams, president of Micron, in its recent earnings conference call with analysts. The new structure will comprise the memory solutions group, which will be led by Brian Shirley, vice president of memory solutions.
Adams added:

We are confident this new organization will help us better react to unique customer requirements in a memory business which is increasingly solutions oriented. We continue to see overall good balance in the memory industry and we are investing in opportunities to differentiate our products and with our customers.

Analysts said it makes sense for Micron, which is based in Boise, Idaho, to realign its business units as the market transitions. The memory landscape has changed over the last few years. Historically, memory chips, which were mainly supplied to the PC sector, were a commodity. But with the quick rise of the smartphone, mobile DRAM is becoming a larger portion of the market. According to Cliff Leimbach, an IHS analyst for memory and storage, mobile DRAM will account for approximately 40% of DRAM shipments compared with just 15% in 2011. Leimbach said:

You have the mobile DRAM market quickly expanding the last few years, and at the same time the PC market is pretty flat,” Leimback said. PC shipments are in the low single digits, but experienced a decline last year, which was the first in a long time. You have a lot of DRAM players looking at this and seeing the market shift and figuring out where they need to allocate resources.

The DRAM market has stabilized, according to Mark Durcan, Micron's chief executive, citing several factors. Hynix's fab in Wuxi, China, has recovered from a fire and is back online; supplier and customer inventory levels are low; and Micron has reduced its DRAM capacity as it converts its Singapore facility to NAND production. Durcan said:

Our outlook for memory industry conditions remains favorable. We believe the current industry structure is fundamentally changed and we can now manage our business focused on return based capital and supply decisions, which was not always possible in the past.

The positive business climate was reflected in the memory maker's latest quarterly financial results. Micron posted a 98% jump in year-over-year revenue of $4.11 billion in its second quarter of fiscal 2014, while revenue increased 2% sequentially.
On a GAAP basis, net income in the second quarter of fiscal 2014 was $731 million compared to net income of $358 million in the first quarter of fiscal 2014 and a net loss of $286 million in the second quarter of fiscal 2013.  On a non-GAAP basis, net income was $989 million, compared to net income of $881 million in the first quarter of fiscal 2014.
NAND flash revenue grew 11% sequentially due to a 35% increase in sales volume; however, average selling prices dropped 18%. In the DRAM space, revenue was flat as both sales volumes and average selling prices remained stable.
The company's overall consolidated gross margin was 34% in the second quarter of fiscal 2014 compared to 32% in the first quarter of fiscal 2014 as a result of a higher DRAM gross margin.
Micron's management expects total industry bit supply growth to reach the low to mid-20% range for 2014, which is slightly lower than prior estimates. In subsequent years, Micron expects a year-over-year DRAM bit supply growth in the 20% to 30% range driven by stable wafer output coupled with slowing process technology node migrations.
In addition, DRAM wafer production is expected to reach the mid-single digits this year, Durcan said, due to "DRAM to NAND conversions and the ongoing increase in process complexity as geometry shrinks."
For NAND, Micron is projecting industry growth in the low 40% range for 2014, which includes an increase in industry wafer production of just over 10% with the remaining supply growth coming from technology, Durcan said. Micron's management expects the industry to post similar numbers in 2015, but cautioned that the growth rate could slow after 2015 as 3D NAND production comes on line.