Micron: Overvalued? No, The Stock Can Still Go Higher

| About: Micron Technology (MU)

A technical analysis chart of Micron Technology Inc (NASDAQ:MU) shows an impressive +177.29% one year increase in its stock price. In dollar terms, the stock has added $11.24 in its market value, making Micron one of the best performing companies for 2013.

However, some investors are worried that Micron has already reached its peak and is overheating from its rapid ascent. As of today, Micron is trading at $17.58, still down from its 52-week high of $18.85 it set last October 7. This drop is attributed to the less than expected 2013 earnings report that Micron published last October 10.

Despite the decrease, Micron has achieved a +229.83% increase from its 52-week low price of $5.33. The big surge of this company was suddenly cut short this month. The company's stock price took a dive right after the report was published. Investors who expected better financial numbers pushed the price down 3.5% just one day after it the 2013 Financial Report was published. The market's dissatisfaction with Micron has continued today, the price is still down from its previous peak of $18.85.

What the Report Revealed

Micron made a net income of $1.19 billion for 2013, a massive improvement from its net loss of $1.03 billion for 2012. Sales also increased to $9.1 billion, a good increase from last year's $8.23 billion. For this year, shareholders of the company earned $1.13 per share, a great turnaround from the negative $ 1.03 last year.

The company's amazing quarterly performance has fueled the incredible pre-October upward swing of its stock.

The numbers do not lie; Micron's revenue growth was far higher than the industry average of 8.2%. The fourth quarter's huge 22% increase over the 3rd quarter sales has greatly boosted the net income of the company for this year. The $2.84 billion 4th quarter revenue is also 45% higher than the $1.96 billion it earned for the same quarter period in 2012.

The company's 4th quarter DRAM sales was 50% compared to the 3rd quarter figure thanks the 42% increase in sales volume and 5% increase in DRAM prices. NAND memory products also had a net 5% increase for the same quarter, 17% increase in sales volume minus the 11% decrease in NAND flash memory prices.

For fiscal year 2013, Micron has a healthy cash flow of $1.8 billion and ended the year with $4.2 billion in cash and investments. This amount includes $556 million intended as payment for the first Elpida creditor installment.

What Worries Investors

Bearish investors are worried that Micron's wonderful run this year is mainly due to favorable events. They doubt that the company can sustain its rapid sales growth. The relentless rapid decline in PC sales will hurt DRAM makers like Micron.

Furthermore, the current high price of DRAM products will go down eventually after Hynix recovers from lost production from their burned down factory in China. Once Hynix starts flooding the market with its full capacity production next year, DRAM price is expected to drop by 30% or more.

Math-savvy analysts point out that Micron's huge $1.19 net income profit this year will most probably take a dive after DRAM prices go down next year. This gloomy forecast is based on the dismal 2012 results of Micron where it lost more than $1 billion due to unfavorable DRAM prices and declining PC sales.

Unfounded Pessimism

Informed investors should not share the negative outlook. Micron has covered all the bases. Its purchase of bankrupt Japanese chip maker Elpida last June has doubled the production capacity of the company. Declining DRAM prices can be effectively countered by increasing production and selling more chips.

Together, Elpida and Micron, as a unit, makes it the second largest memory chip maker behind Samsung (OTC:SSNLF). The assets that Micron gained from taking over Elpida include a controlling stake in Rexchip, a leading supplier of mobile DRAM chips. Elpida is a major memory supplier to Apple (NASDAQ:AAPL).

The purchase of Elpida gives Micron a bigger foothold in the high-margin mobile flash memory market. As per Digitimes Research, mobile DRAM demand for 4th quarter of 2014 exceeds 400 million gigabytes. Dram bit demand for smartphones alone will rise to 334 million gigabytes for the same period. Tablet computers will also see a 40.5% year over year increase need for mobile DRAM. Elpida and Rexchip's factories can benefit from this rosy mobile DRAM sales.

Micron's growth is therefore protected from the decline in traditional desktop computer sales. The increasing global demand for mobile memory chips can more than make-up for any lost sales due to weak PC sales. The company has a great future ahead.


Micron's stock has not yet achieved its real fair market value. Once the company issues its 1st Quarter report for fiscal year 2014, there's a big chance that the price will shoot up as high as $20 or $21.

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.