Micron: Momentum builds for solid state drives; Memory comes cheap

Micron Technology CFO Mike Sadler says the company is optimistic about flash memory based solid state drives and sees about 5 million to 10 million units being shipped in 2008. By 2011, Micron is hoping for about 50 million to 60 million units.

Sadler, who made the comments on Micron's earnings conference call Tuesday, added another data point for solid state drives. When Sandisk vows to push solid state drives through the channel and both Intel and Micron target the same market chances are pretty good that momentum will follow.

Sadler said:

We do believe that within three or four years -- say by 2011 -- we think that the demand for solid-state drives will be upwards of 50 million units per year, probably closer to 60 million units per year and that the number of bits consumed in those drives will be somewhere in the neighborhood of 20 percent to 25 percent of the total NAND market. That is why we're so bullish on this particular application segment.

Micron has a vested interest in hoping solid state drives take off in PCs--it needs to diversify as it gets crushed by falling memory prices. Micron reported a fourth quarter net loss of $158 million, or 21 cents a share, on sales of $1.4 billion. The results were in line with Wall Street expectations, but it's a tough slog if you make memory chips.

The bright side: Falling memory prices are good for PC buyers.

Here's Micron's state of affairs outlined in a statement:

The company's fourth quarter and fiscal year 2007 results were heavily influenced by industry supply/demand dynamics that depressed average selling prices for memory products. The company's net sales for the fourth quarter of fiscal 2007 increased 11 percent compared to the third quarter primarily as a result of higher megabit sales of memory products. Compared to the prior quarter, fourth quarter megabit sales increased approximately 25 percent and 60 percent for DRAM and NAND Flash memory products, respectively, while average selling prices for both DRAM and NAND Flash memory products decreased approximately 15 percent.

That's a long-winded way to say that there is too much supply of DRAM that will ding Micron at least until May 2008. Meanwhile, PC makers aren't loading systems up with more memory. That's a notable point. There's an oversupply, but PC makers are reluctant to offer more richly configured systems.

Sadler noted the memory cross currents on the conference call:

Due to industry wide oversupply in the memory markets, the absolute price levels have been under pressure. Market demand for computing products continues to be robust amidst typical seasonal demand strength heading out of calendar Q3 and into calendar Q4.

We have seen a moderate flattening in memory content per system growth from the PC OEMs in calendar Q3. I attribute this primarily to concerns from our customers that memory prices were increasing early in the summer. As a consequence, OEMs took steps to maintain reasonable control of system build and material costs, and used memory content as a lever to achieve that. End customers then turned to third-party module makers and spot players to fill memory needs, resulting in extraordinary amount of buying and selling activity in the spot markets. With memory market prices coming back down in late summer, our OEM customers are adopting a more aggressive posture towards system memory content.

The upshot for buyers: You're likely to see more memory loaded on PCs for the holidays just not until manufacturers are confident prices will stay down.

To its credit, Micron has cut costs and diversified into new markets, but its financials won't turn up overnight. What's bad news for Micron may be good for PC buyers.