Micron CEO sees higher NAND prices next year

SAN FRANCISCO Tue Aug 14, 2012 12:45am IST

Micron Technology Inc. COO Mark Durcan speaks during the Reuters Technology Summit in San Francisco, California May 17, 2010. REUTERS/Robert Galbraith

Micron Technology Inc. COO Mark Durcan speaks during the Reuters Technology Summit in San Francisco, California May 17, 2010.

Credit: Reuters/Robert Galbraith

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SAN FRANCISCO (Reuters) - Prices for NAND memory chips, used widely in tablets and smartphones, should firm early next year as industry production cuts offset a weak economy and help reduce a supply glut, Micron Technology Inc Chief Executive Mark Durcan said.

Durcan, who took over as Micron's CEO in February, also said that in the short term, economic uncertainty is weighing on prices Of memory chips, including DRAM used in personal computers.

Slow economies in Europe and the United States and an oversupply of NAND chips used by Apple Inc and other manufacturers of mobile devices have hammered prices and caused losses for Micron, which is the only major U.S. memory chipmaker, as well as for other manufacturers.

"I'm quite optimistic the first half of next year can be significantly stronger for NAND," Durcan told Reuters in an interview on Monday. "It's tougher to know in the short term."

Low prices and steadily rising investment costs to implement new technologies have been driving consolidation in the highly competitive and cyclical memory chip industry.

Reacting to surging sales of Apple's iPads, iPhones and other devices, chipmakers ramped up their NAND production capacity, but a supply glut drove prices to new lows this year.

Japan's Toshiba Corp announced in July that it would slash production of NAND memory chips by 30 percent, a move expected to bolster prices across the industry.

Tepid economies have also taken a toll on global PC sales, already under pressure from growing preferences for tablets and other mobile devices. That has hurt demand for commodity DRAM chips used in laptops and desktop computers and made by Micron, Samsung Electronics Co Ltd and others.

"I don't see anything in the short term, while the macro-economic environment is as slow as it is; that's going to make a significant difference in the next three months or so," Durcan said, referring to DRAM prices.

EVEN KEEL

Formerly Micron's president and chief operating officer, Durcan took the helm in February after CEO Steve Appleton died in a plane crash.

Seen as Micron's even-keeled top technologist, long-time company veteran Durcan had announced his retirement but was quickly appointed to replace Appleton.

"I don't think you should think there's a lot that Micron has done historically that wasn't aligned with my way of thinking," Durcan said. "Having said that, I think the industry is changing."

He said key challenges for himself and other memory industry executives include the spiraling cost of building cutting-edge factories and an increase in end-applications for different kinds of memory chips, as cars, entertainment devices and other gadgets become more and more computerized.

In the industry's latest consolidation, Micron announced in July it would buy failed Japanese chipmaker Elpida Memory Inc for about $750 million in cash, pushing Micron into second place behind market leader Samsung in the global market for DRAM chips.

Along with the cash payment, Boise, Idaho-based Micron will pay Elpida creditors about $1.75 billion through 2019.

Durcan said Micron will decide whether to convert Elpida's factory lines to NAND or other kinds of memory chips as the deal's expected completion in the first half of next year approaches.

"Our view on what we do with this capacity is going to evolve. We understand the long-term trends and we understand where our capacity needs to be eventually, but having said that, there are a lot of other moving pieces," he said.

ULTRABOOKS

Microsoft Corp's planned launch of its Windows 8 platform in October and a push by Intel Inc for manufacturers to build a new category of sleek "Ultrabook" laptops with solid-state drives will increase demand for NAND memory chips as well as DRAM chips, Durcan said.

Solid-state drives store data on NAND chips and are much faster than traditional hard drives.

Governments and companies are also starting to use more high-end solid-state drives in data centers where speedier performance justifies premium prices.

Durcan said improved demand and pricing next year and in the long term will help Micron's investments in NAND chip R&D pay off.

"We've taken steps over the last year to grow our NAND capacity to the point where now we believe we can actually benefit from being in the NAND business," he said.

Analysts have recently estimated a 35 percent to 40 percent drop in NAND prices this year alone.

Shares of Micron were down 0.45 percent at $6.73 on Monday afternoon on the Nasdaq.

(Reporting by Noel Randewich; Editing by Lisa Von Ahn, John Wallace, Matthew Lewis and Steve Orlofsky)