In a financial conference call Micron have said that the power outage on December 3 2020 and the earthquake on December 10 2020 will reduce its memory bit shipments in the ongoing quarter. Since Micron is a major DRAM producer, reduction of its shipments will inevitably affect memory prices. On a brighter note, last quarter Micron reportedly set a record in graphics DRAM shipments.
Bad News
Micron's operations in Taiwan suffered two disruptions in early December 2020. Micron's Fab 11, located near Taoyuan City, was disabled by a sudden power outage that lasted for a little over an hour on December 3. Then a 6.7-magnitude earthquake off the northeast coast of Taiwan forced Micron to take two of its fabs — Fab 11 near Taoyuan and Fab 16 near Taichung —offline on December 10.
Micron said on December 4 that the impact was negligible and Fab 11 would return to normal operation within the following few days. A report on December 11 said that no issues were detected on Fab 16 (also known as Micron Memory Taiwan).
Apparently, the effects of these two disruptions (and/or a cumulative effect on Fab 11) were significant enough to affect Micron's DRAM supply during the quarter.
"The investments we have made over the last few years in facilities' redundancy and cleanroom control substantially mitigated the impact of these two events," said Sanjay Mehrotra, CEO of Micron, during an earnings call. "However, these disruptions have reduced our available FQ2 DRAM supply and negatively influenced our costs in the short- term. The expected impact of these events is factored into our outlook."
Since the impact on Micron's bit supply is uncertain, it is unclear how significantly the reduction of Micron's shipments can affect DRAM prices in general and whether or not it is already factored in the current memory prices. Meanwhile, Micron says that demand for memory is gradually increasing, as is the pricing.
"In DRAM, we are past the bottom, and the industry is in tight supply across major market segments," said Mehrotra. "As a result, we are already seeing our calendar Q1 pricing starting to increase in several parts of the market."
In fact, while the disruptions at the fabs cost Micron quite a lot of money (when equipment that costs millions of dollars is idling, it automatically generates losses for the company), increasing prices and growing demand let the company sell off existing inventory and still make a profit.
Good News
DRAM accounted for 70% of Micron's Q1 FY2021 (ending on December 3, 2020) revenue of approximately $5.773 billion. Graphics memory accounted for a portion of Micron's $4.056 billion DRAM revenue, but this is a high-margin product that brings sizeable profits.
During the quarter Micron began shipments of premium GDDR6X memory as well as its first HBM2E memory. In addition, it significantly increased sales of GDDR6 in summer and fall as AMD, Microsoft, Nvidia, and Sony launched new products that consume from 8GB to 16GB of GDDR6 per unit.
"We are also making progress with differentiated DRAM products such as GDDR6 and 6X for graphics," said the head of Micron. "In FQ1, we saw strong growth in bit shipments for these products [driven by new game console and PC graphics product launches]. We also began revenue shipments of HBM2E products."
A Catch
Strong demand for client PCs, game consoles, graphics cards, servers, and smartphones clearly increases demand for memory, which boosts DRAM prices.
The problem is that disrupted supply chains cause shortages of select components and that strong demand cannot be met. As a consequence, those shortages limit demand for things like memory.
"So, let me be clear that when we're referring to nonmemory component shortages, we were referring to […] our customers experiencing certain end market shortages," said Mehrotra. "without those nonmemory component shortages, yes, the overall demand could have been even somewhat higher."
In fact, shortages of packaging components affects supply of even high-end chips from companies like AMD, Apple, and Nvidia, which obviously limits demand for DDR4, GDDR6/GDDR6X, and LPDDR4X. The head of Micron emphasized during the call that his company has not yet faced shortages of chemicals or consumables in Q1 FY2021, yet he admitted that there are issues with the semiconductor production supply chain these days.
"We were not pointing to any nonmemory component shortages in this quarter for our own manufacturing supply chain," said Mehrotra. "Of course, from the point of view of our own supply chain, we continue to monitor some of the trends that are there in the tech supply chain, there's certain parts of the supply chains running tight, we continue to monitor those in terms of any impact on our business."
