Indeed, Micron's Steve Appleton remarked during the conference call with financial analysts that margins from the image sensors were the best within the company and due to its embedded technology leadership of imaging on the chips he expects margins to remain high, even though competition is getting tougher.

Furthermore, Appleton asserted that some of his competitors in the CMOS image sensor business would struggle to stay in the market due to poorer technical capabilities of their devices.

Even its NAND Flash has taken off, after being criticised as "too little to late" compared with the Samsung's efforts in that market. Micron reported a five fold sales increase, which isn't that bad compared to Infineon's proposed efforts! Micron's Flash devices are being targeted at low power demanding consumer products such as MP3 players. Samsung would seem to have done Micron a favour in that market with its huge allocation dedicated to Apple's needs. Indeed, this was the first quarter where Micron saw "significant sales for the first time," so the Samsung/Apple supply deal has had a positive effect almost instantly!

The only drag on the financial performance would seem to be DRAM DDR and DRAM DDR2. Although prices were flat in the quarter for DDR, after severe drops in ASP's all year, DDR2 prices were falling due to over capacity caused by slower than expected adoption by notebook and desktop PC vendors.

Micron, though may be fighting back in this area, as its manufacturing cost reduction programs, coupled to improved yields and output at its Manassas based 300mm fab is progressing a little better than projections, according to Appleton. Even its speciality DRAM product range was doing well with ASP's higher than even NAND Flash.

Toggling Capacity

Its all well and good, designing and manufacturing devices outside the traditional core products, the hard part it giving those new products enough future capacity to grow with the potential demand. Often one product range is sacrificed for another and never really recovers from that point forward. A diversified product portfolio takes a different level of discipline and needs time to be learnt.

This was one of deep pits Micron could have fallen into over the last year, but it seems now that the risk has been reduced, though it must be said, has not be eliminated. It was not surprising to here from Micron executives that it was playing a fine balancing act between manufacturing allocation, product demand and product gross margins.

Both Hynix and Samsung have been toggling production at fabs between NAND and DRAM for the last 18 months, as NAND has been commanding higher ASP's than DRAM. In Micron's case the toggling is a little more complex to manage as it has specialty DRAM as well as CMOS image sensors, both holding up better in both ASP's and gross margins. Yet NAND is obviously a larger market and demand will continue to be strong for sometime to come. Micron it seems has resisted the urge to switch more than it so far has to NAND, and is currently more interested in protecting its image sensor market and margins over other products within its portfolio.

DRAM allocation would seem to be close to passing a tough crossroads. Micron has switched 200mm DRAM production over to new products incrementally, while limiting the drop in revenues from the historical volume part of the business. This could have gone horribly wrong with poor new product sales couple to reductions in volume revenue DRAM. Micron's 300mm fab played an important part in averting that scenario, as it would now seem that fab is reaching very good yields at the same time as ramping aggressively. Appleton remarked that future DRAM capacity will come from its 300mm fab via ramping slightly further but more from die shrinks being planned.

Both NAND and DRAM manufacturing costs are also expected to continue to fall, adding to the bottom line, according to Appleton. Even its sister fabs at TECH Semiconductor in Singapore have been pushing cost reduction strategies, which have come through in the last quarter to the tune of a 20 to 25 percent improvement.

Toggling capex

Capital expenditure at Micron has always been tight. However, the level of diversity it has been able to achieve means that going forward more money will need to be allocated to capacity and technology development. Capex for 2005 came through at $1.3 billion US dollars, just about as much as the company could afford without reducing its cash savings.

However, Micron stated that capex for 2006 will be in the range of $1 to 1.5 billion US dollars. More money will be required to develop NAND Flash, while funds will be needed to expand 300mm production and migrate to the next feature size. CMOS image sensors also need cash for capacity increases, which will be a boon for its Avezzano Fab in Italy. CMOS image sensors are Micron's "primary growth market," so attention is naturally staying in this area.

All in all, Micron's strategy of diversification is paying off, and starting to pay off well. The company will have to maintain a tight financial ship in 2006, but if they continue executing the way they have in a tough climate other bonuses could come through in 2008.

One key potential bonus is finally utilising its Lehi (300mm ready) fab for chip production. Appleton responded to a question about Lehi, just like he does every conference call, but his response was the most optimistic yet!

Though he dismissed the possibility of using the fab in the next financial year, he did say that the time is coming closer and closer when they would use the facility for 300mm production. Based on our own 300mm fab capacity tracking, an announcement from Micron could happen in the second quarter of next year, as the Manassas fab would be reaching capacity later in the year. As new cleanroom construction is not required the fab could be operational 10 months after placing Lithography tool orders. Those orders could be place in early 2006 and still not come out of the capex budget for that year!

With this week's $33 billion dollar capex binge by Samsung, spread over the next seven years, its not surprising Micron started diversifying a few years ago. All they need to do now is keep on toggling!