Micron Technology (MU) was founded in 1978 in Boise, ID, and began trading publicly in June of 1984. The company is now a highly diversified semiconductor producer, which operates on a multinational scale. It participates in the manufacturing and marketing of Dynamic Random-Access Memory (DRAM) products, including its DDR3 and DDR2 units, which were responsible for about 40% of sales in fiscal 2012. It also produces a variety of NAND and NOR flash memory technology products. These devices, which are used to retain content when a serviceable apparatus is deactivated, feature high-density, small-celled structures that support wide compatibility. Fields including computing, networking, mobile, consumer, automotive, industrial, and server development are all targets for Micron through the operation of its four reportable business segments.
The semiconductor industry under which it operates has felt strong pressure from a macroeconomic standpoint over the last year. Manufacturers across the board have reported notable decreases in top- and bottom-line performances, and Micron has endured similar issues. The company closed out fiscal 2012 with share losses of about $1.00, its worst performance since the recession of 2008-2009. But it was not alone in this respect. Its direct competition suffered, as well. Companies such as ScanDisk Corp. (SNDK), Rambus Inc. (RMBS), and STMicroelectronics (STM) have all fallen mightily.
As a result of these weak market conditions Micron was able to acquire Elpida Memory (ELPDF), one of its largest competitors, during the fiscal fourth quarter. Elpida is a Japanese DRAM manufacturer and is one of the key chip suppliers to Apple Inc. (AAPL). The $2.5 billion purchase was made with the intent of directly improving Micron’s mobile portfolio, which represented 15% of the top line this year. Given that we project the domestic economy will advance only about 2% in 2013, there are looming possibilities of similar growth statistics for Micron during that timeframe. Elpida’s clientele encompasses between 15%-20% of DRAM industry sales at this time and should provide the assets to combat the lagging top line.
This initiative also aids in Micron’s ever-important international campaign. In 2012, about 85% of total sales were generated outside the United States. While this would ordinarily act as a means of relief, given the aforementioned growth projections for the domestic economy, recent performances among European merchants have come to offer a similarly negative outlook with regards to growth. In an industry that lacks many defensive characteristics, these ongoing trends have become all the more disconcerting.
However, in the long term, one could overcome these inconvenient market conditions, but innovation is paramount. Indeed, technological advances in an era that could very well see the demise of the personal computer have never been more important. Micron has historically offered a solid pipeline of semiconductor products that service a wide variety of retailers. Most recently, the company introduced its 30-nanometer, reduced-power, SDRAM product for ultrathin computing devices and tablets. The nanometer has the ability to improve battery life without sacrificing valuable cost efficiencies, a worthwhile endeavor. Also, in the upcoming months, the company has plans to release its highly touted Hybrid Memory Cube product. This revolutionary innovation in DRAM technology has improved overall performance capabilities and still utilizes 70% less energy than that of its predecessors. Moreover, its greater density design requires about 90% less space than today’s RDIMMs, a quality that buyers look for in an effort to further shrink the size of devices without compromising functionality. These initiatives explain the company’s $920 million research and development bill for the current year, but the return on investment remains to be seen.
Micron has had a tough few years. The company is mired by underwhelming demand for PC’s and an unfavorable pricing environment. With the release of Windows 8, we could see an influx of chip orders, but initial forecasting on sales for the product have been relatively disappointing. Much of the company’s future success will rely on this undertaking and the newfound opportunities in its purchase of Elpida. All told, the company has a solid balance sheet and is a quality brand name and the volatile stock holds some interest for patient, venturesome investors.
For a more detailed evaluation of Micron’s business prospects, as well as our take on the investment merits of the stock, subscribers are encouraged to check out our full page report in The Value Line Investment Survey.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.