Things are looking up for Micron Technology (MU) in light of what has happened in the memory market over the last little while. With the recent acquisition of Elpida (ELPDF.PK), the third largest DRAM player, Micron has become the second largest company in the DRAM memory market (Sneha Shah). The other major players left in this space are Samsung (SSNLF.PK) and Hynix (HXSCF.PK).
Micron also has a strong presence in the NAND memory segment. Again Samsung and Toshiba (TOSBF.PK) are the major players here. The result of this industry consolidation has left Micron as the only major North American Supplier in both the DRAM and NAND memory space.
Timing is Everything
The acquisition of Elpida has been viewed as strategic, not only in terms of timing, but also in terms of the price paid. It has been strongly suggested that the company purchased valuable manufacturing assets and technology from Elpida at a fraction of the replacement cost. Not only has this increased capacity, but this has happened at a time when spot prices have increased substantially over the last few months. It seems that the pricing power has shifted over and remains in the hands of the suppliers for the foreseeable future. Add to this the continuing depreciation of the Yen (Elpida was a Japanese firm) due to government policy, and you will have a pleasant, though not surprising, benefit to the company's bottom line over the next few quarters (Russ Fischer).
The purchase of Elpida has lead to the bolstering of another important relationship, that is with Apple (AAPL). Apple has a love hate with Samsung, since Samsung is not only a rival to Apple in the smartphone market, but also a supplier of DRAM memory. In order to address this potentially awkward situation, it was disclosed that last fall, before the acquisition of Elpida was finalized, that Apple was moving some, if not all of its mobile DRAM business from Samsung to Elpida, resulting in a windfall of approximately $3 billion to Elpida (Russ Fischer). The timing couldn't be better.
Another Strategic Alliance in the Offing?
Micron was a beneficiary of Apple's business due in part to Apple's rivalry with Samsung. The purpose of this article is to extend the analysis a little further and make note of another relationship that Micron has that may be potentially rewarding down the road, and that is with Nokia (NOK).
Suffice it to say Nokia has fallen on hard times, seeing smartphone sales fall precipitously and being supplanted by the likes of Apple and Samsung. Samsung is now the leader in unit sales (22.9% 3rdQTR2012 market share versus 19.2% for Nokia). The high end of the market as well is now dominated by the likes of Google (GOOG), Apple, and Samsung, with BlackBerry (BBRY) trying to make a comeback with its Blackberry 10 devices. Nokia missed the boat, but missing the boat and being shut out of the high end of the market does not mean that all is lost.
Let's look at the situation as it stands now. Having 20% of the market is nothing to sneeze at. The question is whether Nokia has the ability to stop the bleeding and stabilize its operations moving forward. In the eyes of this author, I believe that it has, and for the following reasons.
First of all Nokia has a strong position in the lower end of the smartphone market, since most of its sales are in the lower end. Whether the other players will aggressively target and pursue this part of the market where margins are more modest (Forbes) remains to be seen. In this sense, Nokia has a leading position.
The second and more compelling factor is the price sensitivity and demand growth in the emerging markets for smartphones. Growth in demand in the emerging markets will clearly outpace that of the developed markets (Forbes). It is estimated that one billion people from the developing world will transfer from feature phones to affordable smartphones over the next decade (Jacob Steinberg)(Uncommon Sense). If the situation continues where the local service carrier does not offer subsidies, then people from poorer countries will continue to opt for the low end smartphone.
Nokia is in the best position to exploit this market. The company has a strong presence in all parts of the developing world, and is in a good position to take advantage of the expected growing demand. Unsubsidized smartphone prices range from as low as $20 (Nokia 105). Nokia 301 retails for $85 The Nokia ASHA Series retails between $75 to $150. The Nokia Lumia 520 is also a sub $200 phone. (Uncommon Sense). This compares favorably to the high end of the market where unsubsidized prices range from $550 to $650.
You may ask, what has this got to do with Micron? Well Micron has a strong presence in a new upcoming memory called Phase Change Memory [PCM], and this new memory is being installed in Nokia's new line of ASHA smartphones as a power saving application (EE Times). Since its launch in 2011, the ASA series has been well-received in the emerging markets, and the trend is expected to continue. If Nokia can regain its mojo and solidify its position in a faster growing market, then this will only be positive for Micron as well.