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Summary

  • Micron has been growing at a solid pace after its Elpida acquisition.
  • Micron is seeing solid growth in DRAM and NAND due to increased mobile usage.
  • The positive trends in the DRAM and NAND industries place Micron in a solid position to benefit in the future.

Micron Technology (NASDAQ:MU) has been able to achieve strong financial results as a result of its Elpida acquisition. The company upstaged analyst estimates handsomely in the previous quarter, delivering a positive surprise of 79%. Driven by the acquisition of Elpida, Micron has been able to gain market share in the DRAM industry, where it now commands almost 30% of the entire output. With the company's next set of quarterly results coming this week, investors can expect the company to deliver strong results once again. But even if it doesn't, Micron is a stock to hold for the long haul.

Strong performance in the cards

Delivering solid results will be important for Micron, since the stock's performance has been very patchy this year, with gains of just 3%. However, considering that Micron has completed the acquisition of Elpida and is enjoying solid catalysts in the industry due to positive pricing patterns, it might be able to outperform analyst expectations. But the outlook will be more important, and this is what Micron has been working upon in order to propel itself higher.

Micron is focusing on improving its profitability through a capital allocation strategy to maximize long-term returns. With the Elpida integration going on smoothly, Micron is now focused on planning and technology developments. It is ramping up the production of 25-nanometer chips at the Hiroshima Rexchip fab to reduce costs and provide more efficient solutions.

Positive developments

The outlook in the DRAM memory industry also remains favorable for Micron in the long run. Micron expects supply in the industry to remain stable, while demand should increase due to the growing application of DRAM in mobile. Micron is focusing on optimizing existing capacity to improve gross margins. In addition, Micron sees slow growth in industry supply for NAND in 2014, and this should lead to better margins, as prices should remain stable. In addition, Micron is focusing on improving customer enablement, product placement, and value-added applications for NAND. Such moves should drive NAND demand and enable Micron to issue a solid outlook going forward.

Moving on, Micron is looking to improve profitability by optimizing its manufacturing facilities across the globe. In Japan, Taiwan, and Singapore, it is focusing on the production of specific products, such as mobile and graphics DRAM, computing servers, and networking DRAM and high volume and non-volatile technology to make production more efficient. In addition, Micron is seeing demand from different areas, such as automotive, networking, gaming, mobile, and storage.

The DRAM segment should continue to be driven by computing, networking, server, and consumer applications going forward. These already contributed 60% of the total DRAM revenue through the DSG segment, and the prospects going forward look bright as well. Also, the combined DRAM business of Micron and Elpida should also contribute to revenue on the back of automotive, industrial, military, and medical customers.

Micron is seeing good demand for mobile DRAM components that are sold in wafer form. Hence, the company is shifting some of its DRAM capacity in this area to capture the incremental margin. Also, the company is seeing demand for NAND in mobile. In response, Micron is aligning its operations to tap the mobile market through its NAND solutions.

Strong end-market trends

The mobile segment will be an important driver for Micron going forward, as it will lead to higher demand in both NAND and DRAM segments. According to TechNavio:

"The Global Mobile DRAM market to grow at a CAGR of 10.4 percent over the period 2013-2018. One of the key factors contributing to this market growth is the increasing adoption of mobile DRAMs in smartphones. The Global Mobile DRAM market has also been witnessing the increasing number of mergers and acquisitions."

Hence, consolidation in the mobile DRAM space should lead to stabilization in pricing, and help Micro's prospects. The prospects in NAND, on the other hand, are identically positive as well.

According to DRAMeXchange, a research division of TrendForce, "The price movements in the NAND Flash market are expected to remain steady thanks to the industry's stable supply and demand. With the end-demand momentum being certain, TrendForce projects that the total NAND Flash market value will grow by 13.3% YoY to US$ 28 billion. This would mark the second straight year during which the NAND Flash market displayed positive, double digit growth."

Bottom line

Hence, with the prospects in both NAND and DRAM looking up, investors should ignore short-term earnings performance and outlook and hold Micron for the long run.

Source: Why Micron Investors Shouldn't Care About Its Upcoming Earnings