Micron Needs Elpida To Increase Stock Value

| About: Micron Technology (MU)
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Current shareholders should hold Micron Technology (NASDAQ:MU) long term, and interested investors should consider 2012 as an opportune entry point to initiate a position in this undervalued company. The weak recent earnings release and struggling PC market has caused confidence in the semiconductor sector and Micron's stock to diminish. Micron may see a strong uptick in 2013 as more smartphone and thin PC devices that utilize Micron's DRAM and NAND applications come to market. Micron may realize significant increases in revenue if it's able to acquire Elpida, despite current bondholders' objections. Acquiring Elpida will significantly increase Micron's DRAM market share; it will also benefit from Elpida's recent appointment as Apple's (NASDAQ:AAPL) new SDRAM supplier for its devices. Interested investors should follow this development closely as a verdict is expected at the end of October.

It's worth considering Intel (NASDAQ:INTC) when reviewing Micron's metrics because Intel's performance is indicative of industry dynamics and the two firms have a long-term venture in IM Flash Technologies. Taiwan Semiconductor Manufacturing (NYSE:TSM), SanDisk (SNDK) and OCZ Technology Group (NASDAQ:OCZ) are all worth considering as they compete and rely on each other for increasing revenues. Micron's market cap is around $5.9 billion and trades around $6 per share; both Micron and OCZ's forward price is projected to be around 7.3 times earnings. Intel's price is around 10.2 times earnings and both TSM and SanDisk's prices are over 14 times earnings. Micron's 0.74 price-to-book ratio is the lowest among these tech firms, SanDisk's is around 1.5 and TSM's price-to-book ratio is around 3.9.

OCZ's 0.56 price-to-sales ratio is the lowest among the tech firms; Micron's is around 0.71 while TSM's is around 5.4 and both Intel and SanDisk's ratios are around two. Micron's -$0.94 EPS is the lowest among the firms, while SanDisk's $2.61 EPS is the highest among the firms. Micron's EPS has decreased 91% in 2012, OCZ's 66.8% increase in EPS to -$0.24 is the highest growth among these tech firms. Micron's EPS is projected to grow over 777% next year; this is the highest among all of these tech firms. SanDisk's 11.7% increase in sales growth over the past 5 years is the highest among the firms, Micron's 10.7% increase in sales growth is the second highest.

Micron's 0.41 debt-to-equity ratio is the highest among the firms; TSM and Intel's debt-to-equity ratios are both below 0.2. Micron's 11.2% ROE deficit and 7.3% profit margin deficit are the lowest margins among the tech firms. Both Micron and OCZ's operating margins are at a 5% deficit. Intel's 25% ROE and TSM's 32.8% profit margin and 30.8% profit margin are the highest among these firms. Micron's beta score is around 1.2, only SanDisk's beta is higher. Micron's average daily volume is around 27.8 million, only Intel's 39.4 million average daily volume is higher. Micron's stock is down 7.1% YTD through late October, down 4.1% in the past month and 36.2% lower than its previous 52-week high. Micron's stock is down 3.6% since its last earnings release.

Micron's most recent earnings release reflects declining revenues in the fiscal fourth quarter and for the year 2012. Fourth quarter net sales totaled $1.9 billion, decreasing from $2.17 billion sequentially and $2.14 billion, YOY. Fourth quarter costs of goods sold totaled $1.74 billion, decreasing from $1.93 billion sequentially and $1.81 billion, YOY. Net loss totaled $243 million, decreasing from a $320 million net loss sequentially and increasing from a $135 net loss, YOY. Revenue from NAND sales decreased 12% sequentially due to an 11% decrease in sales volume. DRAM revenue decreased 9% sequentially due to a 9% decrease in sales volume. NOR Flash accounted for 12% of net sales, improvements in NAND and NOR Flash were offset by lower sales margins from DRAM products.

Micron's 2012 net sales totaled $8.23 billion, decreasing from $8.78 billion, YOY. Micron's cost of goods sold for fiscal year 2012 totaled $7.26 billion, increasing from $7.03 billion, YOY. Net loss totaled $1.03 billion, a substantial decrease from a net income of $167 million, YOY. Micron's long-term debt totaled $3.03 billion, increasing from $2.93 billion sequentially and from $1.86 billion, YOY. NAND sales revenue increased 14%, YOY due to a 106% increase in sales volume from the IM Flash ramp up, this was partially offset by a 45% decrease in average selling prices. Fiscal year 2012 DRAM revenue decreased 12%, YOY due to a 45% decline in selling prices, however sales volume increased by 59%.

The prominence of Windows 8, Ultrabook devices, smartphones and tablets are expected to increase demands for DRAM and NAND as long as they remain popular. The uptick in demand didn't come as analysts expected proceeding the holiday season, but these devices have a long-term outlook for being high demand products; this bodes well for Micron's long-term outlook. Furthermore, suppliers like Micron already have made an effort to constrain NAND supply in order to push up the average selling prices. Acquiring Elpida will give Micron the second-highest market share of DRAM behind Samsung. Becoming Apple's primary memory supplier for its devices instead of Samsung could significantly improve Micron's revenues in the medium term.

Micron's focus for 2013 is on reducing costs and increasing efficiencies in its manufacturing through technology. Micron's subsidiary, Lexar recently unveiled high performance microSDHC and microSDXC UHS-I memory cards for tablets, camcorders and smartphones that will hit the market in November. The memory card design is focused on high-capacity and high-storage in order to deliver HD media files to consumers.

Micron also recently unveiled its 30 nm DDR3L-RS SDRAM designed for ultrathin devices, smartphones and tablets, improving overall system power while being more power efficient as well. Micron was the first supplier to have DRAM validated on Intel's Ivy-bridge platform Ultrabooks. DDR3L-RS will start production in late 2012; DDR4-RS will be early 2013. Micron's new DRAM line can set the standards for reduced standby and the capabilities for ultrathin devices looking forward. Micron has substantial potential for capital appreciation if it acquires Elpida or once industry demands and prices begin to stabilize in 2013.

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.