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Micron Technology: From DRAM To Drama

Micron Technology (NASDAQ:MU) is a world leader in memory and semiconductor technologies. It offers many forms of semiconductor devices. For example, the firm develops and produces dynamic random access memory, flash memory and solid-state drives. Despite its wide range of products, a large part of its revenue comes from the DRAM segment. In fact, the dynamic random access memory account for about 60% of the company's total revenues.

With the acquisition of Elpida Memory in 2013, Micron became a prominent player in this notoriously cyclical industry. Currently, Micron has a market share of approximately 24%. Consequently, it's the third biggest player in the DRAM industry. Samsung (OTC:SSNLF) is the leader with a market share of 43.1%. The second largest player is SK Hynix with a share or 27.7%. The balance is divided between a fairly large number of private companies. Kingston Technology is a good example.

As the table above shows, the three biggest players control around 95% of the market. Clearly, it's a mature market and there's no room for consolidation. Back in 2010, the market share held by Samsung was equal to 32.3%. Five years later, it's equal to 43.1%. In my opinion, the South Korean multinational is the winner. The picture below illustrates variations in the global market share from 2010 to 2015.

In fact, the DRAM market is more consolidated than ever. Consequently, the competition between the three dominant players is extremely fierce. If we combine this factor with a challenging DRAM pricing, it's easy to understand why the stock suffered. At the beginning of 2015, the stock was trading around $35. After a decline of more than 50%, it's possible to buy a participation in the corporation for less than $20.

Indeed, random access memory is cheaper than ever. Ironically, the demand is higher than ever. The number of devices utilizing DRAM has surged over the past years. However, the price has collapsed to historic lows. Evidently, the supply is the problem. To summarize, DRAM is pretty similar to coal. There is an excess of supply...