Author | Yesterday
Key Highlights:
1, memory is the world's largest segment of semiconductors, and 20 years DRAM (53%) and NAND Flash (42%) together occupy 95% of the market share of memory chips, of which DRAM with its economical, reliable and efficient characteristics, is widely used in mobile devices, servers, PCs and other markets;
2, DRAM industry using IDM heavy asset operation mode, the core of the competition of various manufacturers lies in the manufacturing process and production scale, high plant and equipment investment and subsequent large R & D management costs, the formation of high industry barriers, market concentration continues to increase, the current DRAM industry for Samsung, SK Hynix and Micron three oligopolies monopoly, CR3≈ 95%;
3. Driven by the epidemic, 5G, AIoT, electric vehicle applications and other factors, demand will continue to increase, the DRAM market will continue to benefit, as the global DRAM and NAND memory chip leader, Micron also achieved a V-shaped reversal in revenue in the cycle of DRAM;
4. Micron is committed to providing industry-leading DRAM and NAND technologies for major end markets and providing customers with new solutions, of which two advanced products, 1αnmDRAM and 176-layer NAND Flash, have accounted for the vast majority of the company's output, while more than 75% of customer revenue comes from long-term agreements;
5, benefiting from the upgrading of smart phones and servers, DRAM, NAND density has been improved, coupled with the accelerated adoption of electric vehicle ADAS, as well as the promotion and application of DDR5, the market demand for DRAM, NAND will be further enhanced, it is expected that 22 years OF NAND demand will increase by 30%, DRAM demand will maintain high-high double-digit growth;
With the successful launch of 1α DRAM and 176-layer NAND products in major end markets, coupled with the good cost structure provided by these two product portfolios, Micron's market deployment of advanced process technologies will be several quarters ahead of the industry. In addition, Micron plans to start mass production on UV through 1-γ nodes at 24 years, combining EUV with multi-pattern immersion lithography to maintain the company's leading position in DRAM technology.
Memory is the largest segment of the world's semiconductors, the market space is vast, 20 years DRAM (53%) and NAND Flash (42%) together accounted for 95% of the memory chip market share. From the perspective of sales, the largest proportion of semiconductors in the world is memory and logic chips, accounting for 27% in 20 years. Among them, DRAM, with its economical, reliable and efficient characteristics, has been widely used in mobile devices, servers, PCs and other markets, accounting for 53% of the 20-year memory market size, with a market value of 85.4 billion US dollars.
The degree of standardization of memory chips is high, the DRAM industry adopts the IDM asset-heavy operation model, and the core of the competition between manufacturers lies in the manufacturing process and production scale. Because the DRAM process closely follows Moore's Law and changes rapidly, most manufacturers adopt the IDM model, while carrying out technology research and development and capacity investment, so it is also necessary to have a larger shipment to amortize production and R&D costs. Under the IDM model, the high investment in plant equipment and subsequent large R&D management expenses have formed high industry barriers and continuously improved market concentration. After multiple rounds of cycle shuffling, the DRAM industry is currently monopolized by the three major oligopolies of Samsung, SK Hynix and Micron, with cr3 ≈ 95%. Among them, Samsung is firmly ranked as the world's DRAM leader, followed by SK Hynix and Micron. In the absence of key technological breakthroughs, the Matthew effect will continue, and the current monopoly pattern of the three giants will be maintained.
Driven by the pandemic, 5G, AIoT, electric vehicle applications, etc., the DRAM market continues to benefit. The epidemic has led to global digital transformation, which has increased the demand for cloud services; driverless driving and the Internet of Things brought by 5G and AIoT require DRAM as the hardware foundation.
As the global leader in DRAM and NAND memory chips, Micron has also achieved a V-shaped reversal in revenue in the cycle recovery of DRAM. Driven by strong product portfolio momentum, Micron FY22Q1 delivered solid results: revenue increased 33.2% year-over-year to $7.687 billion, an above-expectation of $7.65 billion; gross profit increased 105.4% year-over-year to $3,565 million; net profit increased 187.2% year-over-year to $2,306 million; and diluted EPS increased 187.3% year-over-year to $2.04.
As of the close of trading on December 27, 2021, Micron Technology was up 25.78% during the year, and more than half of the gains (15.12%) were driven by the FY22Q1 earnings report released after hours on December 20, outperforming the NASDAQ 100 ETF (QQQ: 29.23%), the S&P 500 ETF (SPY: 29.36%) and the Philadelphia Semiconductor Index (SOXX: 47.59%) in the same period. Previously, the market thought that memory demand would fall, leading to oversupply and causing memory prices to plummet, which made Micron's stock price hit for most of 2021.
Micron is committed to providing industry-leading DRAM and NAND technologies for major end markets and new solutions for data center, client, mobile, imaging, and automotive customers. By business, FY22Q1 Micron's largest core business, DRAM, accounted for 73% of total revenue, with revenue up 37.7% year-on-year to US$5.587 billion; the other core business, NAND, accounted for 24% of total revenue, with revenue up 19.3% year-on-year to US$1.878 billion. More than 75 percent of customer revenue comes from long-term agreements, a significant increase from about 10 percent five years ago, which is helping to increase the certainty, stability, transparency and visibility of the company's revenue. At Suppliers, the Company has entered into strategic agreements with relevant suppliers to ensure the supply of certain components needed to produce products, and the tight supply situation is expected to gradually improve over 22 years.
Demand for DRAM chips is in a smartphone & server & AloT-driven cycle
Source: Founder Securities
DrAM downstream market segments are concentrated in application scenarios, mainly used in smartphones and tablets, servers and PCs. Driven by the 5G boom, the demand for mobile and server-side DRAM is strong; the PC side enters the stock replacement market and the shipment is stable; the lower-end DRAM is mainly used for consumer electronics/niche products; and the GDDR memory chip is dedicated to graphics.
Smartphones and tablets are the most important market for mobile DRAM
After surpassing the PC side in 12 years, mobile has become the largest market for DRAM, accounting for 36% of total shipments in 20 years. According to IDC, tablet and smartphone shipments in 20 years were 163 million units and 1.294 billion units, respectively, which are the main markets for mobile DRAM.
LPDDR3 is used in the largest low-end smart phone market, but with the gradual saturation of the market, LPDDR4 has become mainstream. Since Micron released the world's first mass-produced LPDDR5 DRAM chip in early February 2020, LPDDR5 has gradually become the standard for the most advanced 5G mobile phones, but due to high cost and continuous shortage of stock, it has not yet become a mainstream configuration. In addition, the world's first LPDDR5X chip based on 1-α under FY22Q1 micron was sampled at MediaTek, demonstrating Micron's leadership in the mobile market.
In the latest financial report, Micron expects 5G smartphone sales to exceed 500 million units in 21 years and 700 million units in 22 years. Due to the memory of 5G machines and more than 50% of 4G mobile phones, the NAND capacity has doubled, further expanding the market size of NAND.
Cloud computing, 5G, AIOT and other driver server markets continue to maintain a high degree of prosperity
In recent years, driven by cloud services, 5G, AIOT, etc., computing demand has increased significantly, as the physical basis for data storage and computing, server shipments have risen steadily, maintaining a high degree of prosperity. According to Gartner, global server shipments rose 3.9 percent year-over-year to 12.6 million units in 20 years. At the same time, in the server core components, CPU, GPU, and DRAM are the main cost expenditures, accounting for about 32% of the total, and even as high as 50%-83% in higher-performance servers.
With the rise of cloud computing and big data, in order to meet the market's demand for greater data capacity and faster processing speed, servers have been continuously upgraded, which has promoted the upgrading and iteration of DDR technology. At present, the development of DDR4 technology has entered a mature period and has become the mainstream of the server memory market. In order to achieve higher transfer rates and support larger traffic, major server providers are embarking on the layout of DDR5 storage products.
Referring to the penetration rhythm of DDR4 chips, usually the penetration rate of each subgeneration product can reach about 20-30% at the end of the first year after the volume, and the penetration rate at the end of the second year can reach about 50-70%, and the most of the penetration of the market is basically completed at the end of the third year. In the next three years, with the penetration of DDR5 and the opportunity of volume and price increase, the market size can grow significantly.
The PC market has entered the stock replacement stage, the market size tends to be stable, and the proportion of DRAM shipments on the PC side is decreasing year by year
With the continuous development of smartphones and supporting ecosystems, PC shipments have shown a slow downward trend since 2011, and only achieved positive growth in 2019. Since 2015, the annual shipment of PCs has remained between 250 million and 300 million units, and with the release of mobile and server-side DRAM, the proportion of PC-side DRAM in 20 years has further decreased to 12%. At present, due to the ravages of the new strain of Obi Kerong, the overseas epidemic situation is still grim, and the strong demand brought by home office learning will continue at least until the first half of 21, but the demand for PC terminal market has shown signs of stabilization.
In terms of DDR5, Micron launched the new Criclic DDR5 desktop computer memory product in late October 21, providing consumers with the high speed and massive bandwidth required by the next generation of desktop computers. Compared to the mainstream product DDR4 memory, the DDR5 has a 50% faster data transfer speed, providing mainstream PC users with enthusiast-level performance. It is expected that DDR5 will take the lead in the PC sector in 22 years, but due to the shortage of key components, there will be a shortage of supply. In the field of processors, the use of DDR5 processors will also be available in 22 years, after the volume, DDR5 in the second half of 22 years will grow faster than the first half of the year. It is expected that by the end of 22 years, DDR5 will account for 20% of the DRAM market.
FY22Q1, DDR5 products are clearly in short supply due to the shortage of memory components affecting the ability of memory vendors to build DDR5 modules. In the future, as the supply shortage of non-memory components (mainly two key components: PMIC power management chips and VRMs) is alleviated, the market share of DDR5 in 22 years will further increase. At present, the platforms that mainly support DDR5 are Intel's 12th-generation Core Alder Lake and AMD's Zen4 architecture EPYC, and it is expected that DDR5's replacement of DDR4 chips may not be realized until the second half of 2023.
The automotive and industrial sectors will be the fastest growing memory and storage markets over the next decade
As a leader in automotive and industrial market share, more than 10% of Micron's revenue comes from these end markets. In the short term, the shortage of non-memory components has limited the production of automotive units for 21 years (unchanged from the previous year), significantly lower than the demand of end consumers. And due to the acceleration of the adoption of ADAS in electric vehicles, especially the acceleration of the adoption of electric vehicles, coupled with the easing of the shortage of non-memory components, the production of automotive units will increase in 22 years, and F22Q1 vehicle revenue will maintain a strong growth of 25%. In addition, Micron has entered into a new supply agreement with UMC to improve its ability to support automotive customers through NAND solutions. Overall, the DRAM content in the automotive market will be about 40% CAGR in the next three years, and the NAND in automotive power suites will also exceed 50% in the next three years.
Micron maintains an advanced position in DRAM processes and NAND technologies
The combination of 1znm and 1αnmDRAM nodes makes up the bulk of Micron DRAM production. At the end of January 2021, Micron announced that it would start mass shipments of DRAM memory chips based on the 1αnm process, which are mainly used in products such as DDR4 memory modules of the Invisal brand and LPDDR5 on flagship mobile phones. Compared with 1znm, the 1αnm process can increase the capacity density by up to 40%, while also reducing power consumption by 15%, making 5G mobile phones better performance, thinner and lighter, and longer lasting battery life. DDR4, LPDDR4 and even DDR5 can also use this new process and support a variety of application devices such as smartphones, notebooks, desktops, servers, and embeddeds.
In the future, Micron plans to achieve mass production on UV through 1-γ nodes starting in the 24th year, combining EUV with multi-graphic immersion lithography technology to help the company maintain its leading position in DRAM technology. At present, the accuracy of DUV technology is approaching the limit, and the next generation of 13.5nmEUV lithography machine is the key to achieving a breakthrough below 10nm at the DRAM process node, and EUV can further reduce costs and increase production capacity by reducing the number of reticles. However, ASML's EUV ships only a few dozen units a year, which is difficult to meet the current demand. Samsung in 20 years to launch EUV technology trial production stage, has shipped the first batch of EUV manufacturing 1Xnm level DRAM, although the current EUV economic benefits are lower than DUV, but with the advancement of DRAM process technology, EUV will be the key to seize the future market.
In the NAND side, Micron has successfully transitioned from floating gates to alternative replacement gates and has developed a roadmap for expansion for several generations. Micron mass-produced the world's first 176-layer 3D NAND Flash in November 2020, which increased the number of stacked layers by 40% and data read and write latency by more than 35% compared with the previous generation of 128-layer 3D NAND, which greatly improved the performance of applications and helped improve the storage capacity of mobile devices, automobiles, clients (PCs) and data centers. At the same time, Micron announced in late July 21 that it had begun mass shipping of the world's first 176-layer NAND Universal Flash (UFS) 3.1 mobile solution. Purpose-built for high-end flagship phones, the product delivers a 75 percent sequential write and random read performance improvement compared to its predecessor, layer 96 USF3.1 storage, unlocking the potential of 5G — downloading a two-hour 4K movie in just 9.6 seconds. At present, 176 layers of NANDFlash have accounted for the vast majority of the company's NAND production.
Looking ahead, Micron expects industry-wide 22-year NAND demand to grow by 30%, in line with the industry's long-term CAGR, DRAM demand will maintain medium- and high-double-digit growth; Micron 22-year DRAM and NAND shipments are expected to be consistent with the industry, and shipments in the second half of the year will grow faster. For next quarter guidance, the Company expects FY22Q2 revenue of $7.3-7.7 billion, diluted EPS under GAAP standards of $1.73-1.93 and non-GAAP standards of $1.85-2.05 of diluted EPS.
Under the Matthew effect, the DRAM industry with high capital and technical barriers will continue to maintain an oligopoly pattern; and benefiting from the upgrading of smart phones and servers, drAM and NAND density have been improved, coupled with the accelerated adoption of electric vehicle ADAS, and the promotion and application of DDR5, the market demand for DRAM and NAND will further increase. With the successful launch of 1α DRAM and 176-layer NAND products in major end markets, coupled with the good cost structure offered by these two portfolios, Micron's market deployment of advanced process technologies will lead the industry by several quarters.
Note: This article is original by the US stock research agency team, please indicate the source when reprinting, thank you!