Micron Technology Inc. executives have been adamant that the sudden spike in demand for its memory chips is not a short-term phenomenon. Now, they’re putting money where their mouths are.

After yet another earnings beat Thursday, Micron MU, +1.61% announced that it would build out manufacturing capacity at facilities in Singapore and Japan for its two core products: DRAM memory chips and flash memory chips known as NAND. The company said its capital expenditures would be at the upper end of its projected range as a result, which was $7.5 billion plus or minus 5%.

The effort costs not just money but time: Micron expects the extra clean-room space will be online next year, near the end of 2019 in the case of its NAND facility in Singapore. That creates a danger that the heightened demand for memory will ease by the time Micron has put the cash and effort into expanding its production capabilities.

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Memory has experienced short spikes in demand before, but Micron Chief Executive Sanjay Mehrotra and some analysts believe the industry has changed since those short-term cycles, mostly because of the need for memory in data centers.

“For the data center, 10 years ago PC DRAM demand was seven times bigger than server,” Longbow Research analyst Mike Burton pointed out in a recent note. “Today, the demand for DRAM in servers is twice as big as PC.”

Beyond cloud-data centers, memory will be needed for autonomous cars and many other technologies that will take advantage of artificial intelligence. Even more standard targets for memory chips, like smartphones and personal computers, are dealing with more intensive workloads from advances like virtual and augmented reality that require faster and better memory.

“The dealer market today is very different from the PC-dominated market of the past,” Mehrotra said in Thursday’s conference call. “This market now supports a healthy demand environment with several secular demand-drivers.”

Micron showed the need for more manufacturing capacity by noting that an issue at one of its Taiwan facilities had forced it to halt production there, which could bring down production and cut revenue this quarter by about 2%, executives disclosed in Thursday’s call. But, showing how strong the business is in the current climate, Micron’s forecast for the current quarter still beat Wall Street estimates after factoring in that expected shortfall.

The extra spending and commitments seemed to worry investors Thursday, as they sent Micron shares down about 3% in after-hours trading despite the company’s earnings and forecast coming in well ahead of estimates. That is a drop in the bucket for Micron stock, however, as it has increased 126% in the past year while the S&P 500 index SPX, +1.83% has gained 12.6%.

Likewise, the gamble Micron is making is slight in comparison to the potential rewards, as the new facilities will be engineered to produce newer versions of its core products that would be welcome no matter the demand environment. If demand does stay strong as executives and analysts expect, it would be a boost for revenue that is already soaring along with Micron’s stock price.

By: DocMemory
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