Micron Technology reported first-quarter earnings last night. Analysts were looking for a net loss of $0.20 per share on $2 billion in sales -- the PC market isn't exactly rosy-cheeked and bushy-tailed, so everybody was expecting bad news.
But memory chip prices fell farther and faster than expected. Revenue dropped 14% year over year to $1.8 billion and the net loss spiked all the way to $0.27 per share. Production volumes are up across the board, but street prices for DRAM and flash memory chips are falling through the basement floor. Share prices moved in the opposite direction, falling as much as 8.9% on the news.
The report also put a damper on the memory industry overall. Yes, it's a gloomy market day to begin with, but sector players from OCZ Technology to STEC lost more value than the average tech stock today.
But it's not all terrible tidings. Micron defended its flash memory pricing by shifting more sales into premium markets such as solid-state drives and ultra-compact multichip packages.
Looking further ahead, management appears optimistic about the proposed Elpida acquisition closing in the first half of 2013. That view was bolstered after the earning release, when another domino fell: The Japanese Fair Trade Commission just gave the deal its seal of approval. This transaction would expand Micron's market reach dramatically, including such choice accounts as Apple's iPhones and iPads.
Furthermore, the combined company would hold a lot of pricing power by sheer production volume controls. Other leading memory chip makers like Samsung and Toshiba are wide-ranging conglomerates with little interest in managing price levels this way. This is why the Elpida buy is so crucial to Micron's results in the next couple of years.
Some would say that this price drop is a buying opportunity. Analyst firm Wedbush Morgan, for one, said that "the worst is likely behind the company" and reiterated its buy rating with an $8 price target. I'm also comfortable owning Micron with a long-term investing horizon. It's no get-rich-quick scheme, but it's a sector leader that's likely to come out of this industry slump stronger than before.
2013 and beyond
The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.
The article What's Wrong With This Memory Maker Today? originally appeared on Fool.com.
Fool contributor Anders Bylund owns shares of Micron but holds no other position in any company mentioned. Check out Anders' bio and holdings or follow him on Twitter and Google+.The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.