Micron - Riding The Wave Of High Chip Demand

Oct. 9.13 | About: Micron Technology (MU)

A factory fire shouldn't be cause for celebration. But in the highly competitive, fast-moving world of semiconductor manufacturing, analysts are quick to point out any potential upsides.

The blaze being discussed took place in late September at a SK Hynix (OTC:HXSCL) manufacturing facility in Wuxi, China. Damage wasn't huge but enough to slow down the factory for a month or so, and requiring the company to cut back production on a big part of the company's DRAM chip operation.

This gives Micron Technology (NASDAQ:MU) and competing chip manufacturers a brief opportunity to scramble to acquire more market share as SK Hynix gets back to full production. It also decreases the availability of DRAM chips and potentially can drive product and even stock prices up. Everyone wins, with the exception of SK Hynix, which might be partially off-line until November.

But even before this unexpected boost, Micron Technology was already seeing an excellent year in terms of value to the company and return to investors.

Last fall, Yahoo! Finance reported that Micron shares were trading just under $6, but the price started steadily climbing to right around $18 at the beginning of October, a 52-week high. So far, it has seen a 195 percent growth in stock price for 2013, a figure that has exceeded the expectations of many analysts.

Micron isn't alone in the pleasant upswing - competitors Samsung (OTC:SSNLF), SanDisk (SNDK) and Intel (NASDAQ:INTC) are also doing well due to a growing market for chips in mobile products worldwide, especially ones using DRAM technology.

DRAM, or dynamic random access memory, stores data in different areas of the chip than traditional RAM, and requires fewer transistors. They are ideal for higher-speed products where space is at a premium, such as video games, laptops and the exploding market for mobile devices.

247Wallst.com shared that semiconductor sales rose to $25.87 billion from August 2012 to August 2013. Of these, sales were 23.3 percent in the Americas, 7.6 percent in Asia and 5 percent in Europe. Three-month sales rose 11.8 percent in the Americas, 1.9 percent in Asia and 2.4 percent in Europe.

Japan saw a 16.4 decline in sales for the year, but was still up 10.8 percent for the last three months.

China is now the world's largest mobile market with 1,155.3 million of the country's 1,344.1 million residents going mobile, or 85.9 percent. Of these, 293.0 million people, or 21.8 percent, are on a 3G or 4G network.

India follows on Mobithinking's chart, with 699 million mobile-equipped users from the population of 1241 million, or 73.1 percent. The U.S. is next, with 321.7 million of the 311.6 million residents mobile-equipped.

Though the chip industry has positive expectations in general, Micron doesn't quite have full confidence from those on Wall Street.

Schaeffers Research said that 10 out of 23 analysts have recently posted a hold or lower ranking on Micron stock, and that its current high stock price around $17 actually isn't that out of line from price target of $18 some set for it as early as 2012.

Other analysts are more encouraging, such as Credit Suisse (NYSE:CS), which raised its price target from $20 to $25, and Citi (NYSE:C), which raised the target from $19 to $30, due to anticipation of the success of the DRAM chip for every manufacturer. Stifel (NYSE:SF) raised its target from $20 to $24, saying the company is responding well to structural changes in the memory industry.

Along with focusing on the creation of chips in all sorts of devices, Micron continues to look for other ways to control costs. Lately, this includes selling a NOR semiconductor fabrication plant in Israel back to Intel. The 200-mm NOR plant was leased by Micron and Needham & Co., and originally expected to be closed by 2015.

Micron now plans to consolidate the chip production from its Israel division to a 300-mm plant in Virginia, partly to get away from the high focus on NOR chips, which many say are a declining market compared to the DRAM.

These efforts will allow Micron to continue to focus not just on DRAM chips but NAND Flash, plus continuing collaborations with other companies such as the DRAM fabrication facility shared with Nanya Technology.

Overall, Micron seems to be a smart investment bet right now, based on the growing interest in chip technology.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.