Opportunities
- Elpida is now their ace in the hole with Apple Inc. (NASDAQ:AAPL) switching to Elpida as its mobile DRAM supplier and this one deal alone should be immediately accretive with $470 million in possible profits. Similar deals with other smartphone makers should be pursued relentlessly.
- Micron needs to continue growing NAND flash while gradually de-emphasizing DRAM for PCs. NAND flash is in most smartphone and tablets as a memory component. Mobile DRAM markets have been growing by double digits annually with increasing need for DRAMs in ultrabooks, tablets, and smartphones. In particular, IHS iSuppli predicts DRAMs in tablets will have grown almost 100% from 2011 to 2016.
- The company has a joint venture with Intel Corporation (NASDAQ:INTC) on a high bandwidth low power DRAM stacking solution for supercomputing called the Hybrid Memory Cube resulting in 90% less space usage and 70% less power needed while improving memory bandwidth 15 times. Supercomputing has commercial applications for many industries with the most understandable being the driver assistance features in new cars. More joint ventures in the future would bode well for Micron.
Threats
- Competition from Samsung is expected to grow fiercer. Samsung and Micron are in a heated race on TLC NAND chips and that’s just one chip. South Korean competitor Hynix just posted a profit and they are gaining on Micron as well.
- So far, everything is looking good for the Elpida deal going through but a risk would be any last minute Hail Mary legal passes by US bondholders in Elpida. The Elpida deal needs final approval from Delaware Bankruptcy Court and creditors of Elpida’s still have until the end of February to vote on the planned sale.
- Any slowdown in tablets, smartphone, and ultrabook sales will impact Micron. As PC sales continue to decline revenues from the former need to offset DRAM losses from PCs.
- Value investors prefer partner Intel’s 9.89 P/E and 4.30% yield, one of the best deals in big tech. Intel’s PEG is 1.01 so it’s priced for perfection right now. The maker of digital technology platforms is expected to grow EPS by 12.33% annually over 5 years and has a mean price target of $23.00 for some 10% upside.
Things Have Got To Go Right
Several very important things have to go very right for Micron like the closing of the Elpida deal after which investors should be able to heave a long deserved sigh of relief. But then Elpida and Micron have to integrate seamlessly and keep major client Apple very happy. There are some signs that Micron’s juju may have turned around and then it will definitely have some good momo. This stock could go a lot higher if Elpida turns out to be everything they hoped for and more. Micron could have a speculative spot in a portfolio but a big tech like Intel on any pullback is a better bet long term.
The article Micron: Bad Juju or Good Momo originally appeared on Fool.com and is written by AnnaLisa Kraft.
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