Micron Is Ready to Ride the Memory Market Higher
Adetokunbo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The memory market is showing an improvement in both DRAM and NAND segments. The mere mention of the memory market will, in most, elicit the knee-jerk reaction of relief for Micron Technology (NASDAQ: MU). Before DRAM prices recovered, Micron missed Wall Street’s consensus estimates for eight consecutive quarters.
Companies such as Samsung (NASDAQOTH: SSNLF) and SanDisk (NASDAQ: SNDK) are also active in the memory market and are aggressively trying to set the new standard for the sector. While I see this as crucial to both, I believe Micron will continue to thrive in the sector because it has been able to focus its energies on advancing its operational efficiency.
The trend of tablets and smartphones is driving the DRAM market. A report from market researcher IDC stated that the DRAM share in smartphones and tablets is expected to reach 26.7% by the end of 2013, almost double from 14.1% in the first quarter of 2012. Over the next few years, tablets and other mobile devices will lead to greater usage of DRAM.
Micron has gained traction with European customers and continues to win new designs. It is also setting the standard in the production of solid-state drives and DRAM for desktops, laptops, servers, and other devices. For instance, it introduced its SAS solid drive earlier in the year and the new PCle accelerator
Competitor number one: Integrated Silicon Solution (NASDAQ: ISSI). To cope with the depressed DRAM market and counter Micron's release of the accelerator and other DRAM products, it introduced a new 4-gigabit SDRAMs solution to provide product support for applications in the automotive, industrial, medical, and communications sectors. When favorable times arrived, namely the improving prospects of the DRAM and NAND market, Integrated Silicon Solution's stock gained momentum.
It now sits at around $11, and the company reported a loss per share of $0.16 in the trailing twelve months. Integrated Silicon Solution offers investors EPS growth -- estimated to average 10% a year over the next half-decade.
Competitor number two: SanDisk. Shortly after Micron introduced its SAS solid-state drive, SanDisk released its Extreme solid state drive to prevent a Micron domination of the market. With SanDisk reporting an 11% improvement in revenue on a year-on-year basis in the first quarter, it is also setting a very high standard. Not only has Micron suffered due to the declining PC industry, it has also lost market share to SanDisk. SanDisk offers investors EPS growth -- estimated to average 28.43% a year over the next five years.
Samsung is the largest memory company in the world. Micron, a long-standing Samsung rival, stands to gain from Samsung’s struggle for a market share in the smartphone and tablets sector. Both companies compete in the low to medium DRAM density and other areas of the market. With the Elpida acquisition, Micron will get Apple as its customer. However, Samsung and Micron collaborated in developing the Hybrid Memory Cube 1.0 project. Still, Micron lost market share to Samsung when DRAM prices fell.
One of Micron’s main strength is its resilience. It has also made progress in securing the necessary approval related to the Elpida acquisition. Its management is optimistic it will be able to close the transaction in the fourth quarter. If one adds the rising DRAM and NAND prices into the equation, Micron becomes even more attractive.
Micron’s stock has not been all roses. However, its shares have been climbing in the past few months. They hit a 52-week high on June 27. I believe the stock will continue appreciating as DRAM and NAND sales rise. I think it's time to get in on a pull back.
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