In acquiring a company amid a growing industry and diversifying demand, 2014 proved to be a successful year for memory giant Micron Technology.
The story of the semiconductor memory industry is one of innovation and consolidation.
Years ago, there were many competing chip companies. One of those companies was Boise, Idaho-based Micron Technology, which was founded in 1978.
Then, mergers and acquisitions began. Micron’s first major acquisition was Texas Instruments’ worldwide memory operations in 1998.
What sets Micron Technology apart
No. 1 broadest memory chip and drive portfolio in its industry, with more than 20,000 patents.
According to Brian Shirley, vice president of memory and technology solutions at Micron and a 27-year employee of the company, this deal “roughly tripled the size of the company overnight.”
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Fast forward to 2014. With approximately 20,000 patents and many more acquisitions to its name, Micron has emerged as a global leader in semiconductor-memory production and a seasoned practitioner of innovation and consolidation.
“There were something on the order of 45 competitors in the space,” Shirley said. “By and large today, we talk in terms of there being three competitors total: Micron, Samsung and a company by the name of Hynix.”
Micron’s performance in 2014 was strong enough to rank third in The Seattle Time’s 24th annual ranking of publicly traded companies based in the Northwest. It topped the ranking 20 years ago.
From 2013 to 2014, Micron’s profit grew from $1 billion to $3 billion, with sales increasing from $9 billion to $16 billion.
Its return on invested capital alone rose from -3 percent in 2013 to 21 percent in 2014. Its free cash flow also rose from $567 million in 2013 to $3 billion in 2014.
In a period of consolidation, Micron has been a survivor.
“Recently, what we’ve been seeing is a huge wave in consolidation,” Shirley said. “Micron has been active there.”
That activity was the purchase of Japanese memory-chip manufacturer Elpida, which Micron finalized in July 2013. According to Shirley, this raised its revenues from $8-9 billion to $16-17 billion. Micron also acquired DRAM manufacturer Rexchip Electronics in 2013.
Micron Technology at a glance
CEO: Mark Durcan
Headquarters: Boise, Idaho
What it does: Makes semiconductor memory components such as DRAM and NAND flash memory chips, as well as a variety of solid-state drives.
One analyst attributes this consolidation as a core reason for Micron’s great year.
“[Micron has] had a significant increase in earnings,” said Bill Dezellem, president and chief investment officer of Tieton Capital Management, who has followed and tracked Micron Technology for 20 years. “And that is a direct function of a rationalization of the DRAM market.”
But while competition is shrinking, sales in the DRAM market are growing.
According to data from the Semiconductor Industry Association, the semiconductor-memory segment was worth $79.2 billion in 2014. That’s an 18.2 percent increase from last year, and memory was the fastest-growing semiconductor product segment. The report also mentioned that dynamic random access memory (DRAM), one of Micron’s chief product sets, grew 34.7 percent year-over-year alone.
Semiconductor memory — with DRAM, NAND flash and NOR flash being Micron’s chief products — is necessary for electronic devices to run applications and store memory. Shirley said that diversifying demand in memory chips — spurred partly by the rise of mobile devices, data centers and the Internet of things — has also contributed to Micron’s increases in numbers.
“Really, our chips and specialized versions of those, adding value through additional features, are working their way into a huge variety of applications,” he said.
Dezellem however, thinks the market is skeptical of Micron’s success, citing cycles in the industry as the reason.
“Historically, whenever Micron or the DRAM industry has shown some sign of [growth or stabilization], that’s been quickly followed by a capacity expansion and then the next downturn in the cycle,” he said.
“It seems as if investors and those watching are concerned that that may happen again,” he continued. “And yet at the same time [they are] recognizing that the industry structure is now different, so it shouldn’t be the case. So there’s some cautious optimism.”
Cautious, indeed. One of Micron’s weightier future challenges lies in product innovation. The barriers to entry may be increasing, but the physical space in which to innovate memory is increasingly dwindling.
“The technology is without a doubt more difficult now than it’s ever been,” Shirley said. “The good news is that we do see a good path forward for certainly the next decade or so. But at some level, the physics get to be pretty difficult.”