Contributor Since 2009
Consolidation is a growing theme in 2015, with companies deploying cash, taking advantage of the strong US dollar, and acquiring market share, as opposed to growing organically. The pharma sector is well ahead down this road, but the tech sector is not far behind.
Mobile continues to a main driver of tech growth, with smartphones and tablets, but now also with the emergence of smartwatches and connected devices & appliances (the so called "Internet of Things"). These trends are not only significant for the mobile technology industry, but also for the semiconductor companies, as it will boost the demand for mobile DRAM and NAND Flash.
The continuing growth of the Google (GOOG) Android-based and Apple (AAPL) iOS ecosystems will drive strong sales of NAND flash and mobile DRAM in an elastic market of tablets, smartphones, and smartwatches. This in turn would benefit companies like Micron Technology (MU) and Sandisk (SNDK).
In this environment, Intel (INTC) should acquire Micron Technology, as the move would diversify its product offerings.
It would not be so surprising to see INTC make a significant move and acquire MU in order to bring DRAM and NAND technology in-house and sell platform solutions. After all, they already have a joint venture to develop emerging memory technologies, such as 3D-NAND.
Such a move would give Micron the ability to be part of a platform company and extract higher margins from the memory business by selling platform solutions.
From Intel's viewpoint, the acquisition would give chip maker added bill-of-materials in mobile devices, which may offset the lower price of mobile applications processors versus PC processors. Intel could also design platform processor/memory solutions with lower power, higher performance, smaller form factor, etc.
Micron Technology, which is one of the largest memory chip makers in the world, makes DRAM chips, flash memory chips, and memory modules. The company, which generated $17.0B billion revenues in fiscal 2014 (twice what it was in 2010), sells to customers in networking, consumer electronics, and telecommunications, but the bulk of its sales are in the computer market. The link-up with Intel would open up more doors in the mobile market.
As of this writing, Micron Technology has a market capital of $29.6 billion and its enterprise value comes around $32.3 billion. Its shares were trading with a 3-month average volume of 24.9 million shares per day. Its price-to-earnings ratio stands at 8.49, below its historical average. The company, which has total cash in excess of $4.5 billion, offers a return on equity for the trailing 12-month period of 33.45 percent and its book value stands at 11.57 per share.
As for Intel, it currently has a market capital of $149.9 billion, total cash of over $14.4 billion and a book value of 11.77 per share.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.