Is It Time to Buy Micron?

Is It Time to Buy Micron?

Micron is driving efficiency in its operations. With new investments in memory solutions and the impeding closure of the Elpida acquisition, here is what you need to know about the stock's future prospects.

Micron markets a full range of DRAM, NAND flash, and NOR flash memory products. The company's DRAM products were responsible for about 40% of Micron's total sales. Prices and shipments are up in the present quarter. However, the gross margin of Micron's DRAM segment has fallen behind others. While Micron pegs its 2013 gross margin at 24%, SK Hynix has a 2013 gross margin of 38%. But Micron will begin shipments of its 25-nanometer DDRC technology in early 2014. This offers higher storage capacity for consumer electronics. Micron will also start sampling its 20-nanometer DDR3 product by the end of the year. That product provides high performance for CPU systems. If they gain traction in the market, Micron will be due for an improved gross margin.

Other semiconductor companies are also making investments in DRAM solutions. Samsung will begin commercial production of 20nm-class DDR4 modules that can be mounted on high-capacity servers in next-generation data centers. The modules improve stacking capabilities for the enterprise and tablet markets.

Elpida acquisition
With DRAM sales showing potential, Micron is taking its earnings up a notch with the closure of its Elpida acquisition at the end of the present quarter. Micron CEO Mark Adams believes the acquisition will provide a lot of prospects. "After the closure of our Elpida transaction, we will have increased our trade memory capacity over 90% compared to early last year," Adams said.

With the development, Micron can grow its 24% gross margin. Additionally, the combined revenues of Elpida and Micron will fall just shy of the amount claimed by Hynix in the mobile DRAM market.

Not unlike its rivals, Micron is making investments in NAND for future revenue growth. The company is forecasting that supply will be up in the mid-30% range this year. To benefit from it, Micron is converting a significant majority of its DRAM capacity in its Singapore plant to NAND. This is due to the explosive rise in NAND use for solid-state drives within the PC business. Competitor SanDisk is also strengthening its business with new investments in NAND. SanDisk will be converting some DRAM-capacity products to NAND and the early generation of 3D NAND products. Micron's NAND initiative is a smart move because the market has immense growth potential.

Micron also sees potential in the embedded market. Consequently, it is investing in converting its NOR products to low-density NAND in the embedded-solutions sector. NAND flash products provide the high performance that is demanded in today's embedded products. If the market decides the initiative is compelling, the semiconductor company could see sales soar.

Bottom line
Micron has consistent management with a potential catalyst in its products. With new investments in memory solutions and the fast-approaching closure of the Elpida transaction, investors should be positioned to benefit from significant increases in revenue and gross margin. When the new developments begin to gain traction, the stock price should follow upward. I recommend you add this company to your watch list, read the next annual report, and listen to the earnings call.

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Adetokunbo Abiola has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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