Why Micron Technology Is a Good Buy
Micron Technology (NAS: MU) has been plagued with falling revenue in its DRAM solutions segment for quite some time. The company's first-quarter results saw a 7.2% decline in revenue to a little over $2 billion mainly because of falling DRAM prices. However, I feel that the company could be a good bet for the long run. Why?
Let's take a closer look.
DRAM prices have been suffering for a number of years. But as of late, the DRAM industry has witnessed something that would make prices move north.
Recently, the world's third-largest DRAM memory maker, Elpida, filed the largest bankruptcy ever in the history of Japanese manufacturing. The immediate fallout of this news was a sharp speculative rise in DRAM prices. The reason for this is that if Elpida goes down, it would pull roughly 12% of the global supply for DRAM chips out of the market. This would result in reduced supply, which would in turn push prices up.
DRAM back in action
Research firm iSuppli believes that if more than 25% of the bankrupt company's productive capacity gets knocked off, it would result in a 15% rise in the global average selling price by the end of the first half of the year.
In fact, the research company believes that worldwide revenue for DRAM manufacturers would bottom out this year at $24.4 billion and would rise dramatically to $40 billion by 2015. If this were to become a reality, it would definitely be a huge positive for Micron and the industry as a whole. But wait, that's just half of the story...
Micron also manufactures NAND flash chips used in smartphones, tablets, and high-end notebooks. These gadgets are all the craze in today's technological landscape. But what sweetens the NAND chips even further is Micron's deal with the Godzilla of chips, Intel (NAS: INTC) . According to the deal, Intel would sell two of its NAND wafer factories to Micron for $600 million. Micron would pay half the amount in cash, and the other half would be retained as advance for future purchases. So, that's a guaranteed $300 million in sales. But what's even better is the fact that the deal would give Micron better margins as it would have full ownership of these factories, boosting capacity by as much as 30%. This can only be good for Micron!
The Foolish bottom line
If you take into account the future growth potential for Micron's NAND and DRAM business for the reasons mentioned above, Micron is certainly worth keeping tabs on.
Does that make you prick up your ears in excitement? Then don't forget to stay up to speed with the latest on Micron Technology by adding it to your Watchlist. It's free and lets you stay on top of the latest news and analysis for your favorite companies.
At the time this article was published Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Motley Fool owns shares of Intel.Motley Fool newsletter serviceshave recommended buying shares of Intel. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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