MU Micron Technology Inc

By Elizabeth Koh and Asa Fitch 

With much of the world in lockdown, internet users are logging billions of hours of additional screen time as daily life goes virtual.

That increase has seen data centers beef up their infrastructure to meet demand, a trend that is bolstering the businesses that make components for the servers that store data and power the world's Zoom calls, Amazon sprees and Netflix binges.

Some of the world's biggest memory chip makers, South Korea's Samsung Electronics Co. and SK Hynix Inc. and Boise, Idaho-based Micron Technology Inc., say that boost has been welcome in an otherwise challenging environment. At Micron, sales in its February quarter fell but were near the high end of management's guidance range due partly to data-center demand. At SK Hynix, average selling prices for some chips rose slightly in the last quarter, pushed by demand for servers.

Intel Corp., the largest U.S. chip maker, said last week that data-center sales surged by 43% in its first quarter, driven by demand for its computer-processing units. Demand for other processors for personal computers have also gone up as people buy equipment for remote working, Intel said.

To some extent, the rising demand for data-center equipment merely counters falling demand for other electronic components as coronavirus craters the global economy. Analysts still expect a decline in semiconductor sales globally this year, but for now demand remains strong.

The increased spending on memory chips has been led by heavyweight cloud providers such as Amazon.com Inc. and Microsoft Corp., which have both seen dramatic increases in usage.

Suppliers are adapting fast. SK Hynix, which makes DRAM and NAND flash memory chips, said Thursday that it planned to raise production and increase sales of certain memory chips.

Micron Chief Executive Sanjay Mehrotra said last month that he was shifting production capacity away from chips for smartphones and cars toward data-center products. Prices for digital storage and memory are holding up since the start of the pandemic.

While the memory-chip bump may be temporary, suppliers to the cloud can expect the rising demand to last "at least as long as the shutdowns," said Kuba Stolarski, an analyst at market-research firm IDC. As people become more accustomed to conducting daily life online, that usage may stick, he said.

In March, internet users world-wide logged an extra 5 billion hours of screen time on the 100 most popular websites, such as Google and Facebook, according to analytics firm SimilarWeb. That marked a 13% increase from February and the largest monthly rise in recent years.

Businesses are seeking more cloud services to support remote work and increased screen time.

Zoom Video Communications Inc., whose video chat rooms host meetings and cocktail parties, is adding capacity through servers and other equipment in its data centers and cloud services, as it also addresses privacy and security concerns raised amid a massive surge in users.

YouTube, Amazon and Netflix Inc.--which alone added a record 15.77 million new monthly subscribers in the last quarter--have throttled their streaming speeds in Europe along with competitors.

Many data centers deliberately operate at less than peak capacity to account for surges in traffic or potential new clients who might move their business into the cloud. That buffer has kept users from hitting serious issues including sustained outages during the pandemic, industry experts said.

But with no signs that usage will let up, the largest cloud companies, such as Amazon Web Services and Microsoft Azure, are working to maintain that buffer, said Andrew Perlmutter, the chief strategy officer for ITRenew Inc., which refurbishes and resells data-center equipment.

Besides increasing purchases, some major cloud providers are keeping older equipment longer and using software to more efficiently manage data, Mr. Perlmutter said.

Chip companies focused solely on the data-center market have done particularly well during the crisis. Inphi Corp., for example, a California-based maker of semiconductor networking components that go into data-center equipment, on Tuesday said sales were higher than initially expected in the first quarter as a result of faster upgrades of equipment and demand for more bandwidth.

The boom time for chip makers may be brief, given the industry's sensitivity to supply and demand, analysts say. Some cloud providers are buying up inventory now in anticipation of a second coronavirus wave, potentially denting sales later in the year, they said.

A deeper hit to the world's economy could sting, warned Jin-Seok Cha, SK Hynix's head of finance and vice president. "If the economic downturn is prolonged, we cannot discount the possibility that even server demand could weaken," he said.

Write to Elizabeth Koh at Elizabeth.Koh@wsj.com and Asa Fitch at asa.fitch@wsj.com

(END) Dow Jones Newswires

April 28, 2020 05:44 ET (09:44 GMT)

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