Micron Technology Inc. (NYSE:MU), which is engaged in production of semiconductor flash memory products, including DRAM, NAND and NOR memory products, has been witnessing a rapid rise in its shares in recent weeks. Indeed, it hit a 52-week high of $17.62, representing a unbelievable one year return of 205.37%. Considering its dizzying rise since the beginning of this year, it is natural to wonder whether Micron has reached the summit. However, as an analysis of the current state of the semiconductor market, the capabilities and innovations being carried out by Micron (both technological and structural) and the future potential of the company indicate that the company will continue to grow steadily in the future, and as such, the high flying Micron remains a "buy".
The state of the market and Micron's position in it
Micron competes in the semiconductor market with the likes of SanDisk Corp. (NYSE:SNDK) and Chinese manufacturer Hynix. It has faced, and continues to face stiff competition from SanDisk in the NAND memory market, while Hynix has proved a tough competitor in the DRAM business which drives about 40% of Micron's total sales. However, Micron may benefit from the massive destruction wrought by a fire at Hynix's Chinese factory, which has forced the company to declare that it would not be able to meet demands it October. Indeed, analysts believe the damage is severe enough to affect production till November, driving prices of DRAM products up. Micron has the capability to fill this vacuum and therefore benefit from the rising prices.
Micron's constant innovations
The semiconductor industry demands constant innovation, and Micron has lived up to this demand. Its collaboration with Intel Corporation (NYSE:INTC) has allowed it to benefit significantly in case of the server and SSD applications of its NAND technology. Micron sets the industry standards in the 16nm NAND technology, and leads in the fields of I/O virtualization and Phase Change Memory. It has also announced recently that it will be shipping 2GB Hybrid Memory Cube (NYSE:HMC) samples, which consume 70% less energy while delivering speeds of up to 160GB/s. Keeping in mind the demand for NAND memory, Micron has also started converting its NOR product lineup to NAND in the embedded-solutions sector, which is expected to aid its sales.
Acquisition of Elpida
One problem that Micron has been facing is the low gross profit (24%) in the DRAM segment as compared to Hynix (38%) and others. Since DRAM constitutes a significant portion of its sales, Micron has improved its production capacity by acquiring Elpida. In the words of Micron CEO Mark Adams, "After the closure of our Elpida transaction, we will have increased our trade memory capacity over 90% compared to early last year." Indeed the combined capacity of Micron and Elpida falls just short of Hynix's in the mobile DRAM market. It is expected that the Elpida acquisition will help Micron improve its gross profit ratio.
The future of Micron
Micron is expected to begin shipping its 25nm DDRC technology in 2014, and will begin sampling of its 20nm DDR3 products as well. These, along with the acquisition of Elpida, should provide it with sustained growth for some time to come. Further, demand for DRAM is on the rise due to the rise of tablets and smartphones. Already, demand from companies like Samsung and Apple (NYSE:AAPL) are causing supply shortfalls in the semiconductor market. Considering the excellent innovatin record of Micron, the company is poised to take full advantage of this growing demand and grow at a fast pace.
Analysts' take on Micron
Credit Suisse Group (NYSE:CS)has raised the price target of Micron's shares from $20 to $25, as it sees rising capacity, consolidation and Samsung's share in the handset market as factors helping supply. It has reiterated its "Outperform" rating for Micron. Citigroup, Inc. (NYSE:C) has raised the price target for Micron from $19 to $30, and has reiterated a "Buy" rating for the stock.
The investor's call
With a great history of innovation, excellent future prospects and a good market position, Micron has all it takes to benefit from the growing demand for semiconductor devices in the future. Coupled with the production problems faced by Hynix, these provide Micron with excellent prospects for future growth. It is therefore advisable to "buy" into Micron's stock, and "hold" if one already has Micron's stock.