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Two Tech Stocks to Own
Posted by: Suravi Thacker (IP Logged)
Date: May 23, 2014 09:58PM
As annual IP traffic is expected to grow to 1.3 trillion gigabytes by 2016, many web-enabled solution providers are expected to have new growth opportunities for them. Growth of smartphones, community websites and many Internet-enabled devices has led to the growth of Internet traffic.
The onset of cloud computing is expected to bolster the market for hardware and software companies. According to Gartner, the cloud computing market will grow to $131 billion, an increase of 19%, in 2013. Initially, customers were slow in adopting cloud computing since people were apprehensive about data security. However, cloud computing is now experiencing huge demand by customers.
Companies which offer solutions such as cyber security and business solution software, and storage find the cloud market to be highly beneficial for them. For example, the cloud market has been a boon to Micron Technology (MU) and Cisco (CSCO).
Micron is a company which makes data storage products, and the data boom storage market is growing well, benefiting the players in this space. Micron’s storage products such as dynamic random-access memory (DRAM) and flash memory (NAND) are used in computers and servers for storage purpose. Hence, these products are in great demand.
In order to cut costs, Micron disposed of wafer production facility as well as discontinued its manufacturing of LEDs. As a result, the company widened its margins. Also, the increase in prices of NAND and DRAM led to an increase in profits. All this is attractive for investors.
The benefits of cutting costs and increasing prices enabled Micron to post decent quarterly results. Micron is facing increased competition from large players, as a result of which there were concerns over extra production and higher inventory costs, which could hurt the bottom line. Hence, the company lowered its manufacturing of chips. Also, NAND and DRAM sales jumped 7% and 6%, respectively, even though its prices increased by 16%. Increase in demand for tablets, mobiles and data centers have helped the DRAM market grow, even though the market for PCs is fading away. Solid State Drives (SSDs) by Micron is witnessing great demand mainly because servers need huge storage capacity. For example, P400m helps in storing data in petabytes on a single server and caters to the big data market.
Micron recently cut its employee base by 5%. The move was a result of two acquisitions (Rexchip and Elpida) which added technical staff to Micron. The Japanese DRAM player, Elpida, will help Micron in expanding its memory portfolio through its DRAM fabrication plant. These moves will not only help the company save costs and increase margins, but also expand its DRAM chip segment.
Cisco manufactures IP-based networking equipment and is one of the prominent players in the market of routers and switches. With the help of its product portfolio, the company is trying to concentrate on cloud computing. In order to broaden its bag of products, Cisco has made a number of acquisitions.
In the networking segment, the company acquired Cariden, for $141 million, and vCider. In the Cloud Management segment, Cisco acquired Meraki and Cloupia for $1.2 billion and $125 million, respectively. Its acquisition of BroadHop is mainly in the Cloud Programming segment. These acquisitions added to Cisco’s top line along with giving it exposure to new markets.
The company reported great results for its quarterly numbers wherein its top line stood at $11.6 billion, higher than the estimate of $11.35 billion. Cisco’s earnings were $0.51 per share as against the expectation of $0.48 per share. Cisco looks great for investors who look for a long-term investment in the technology industry since the company has been posting increased revenue. Also, the company’s dividend has increased by 180% in the last two years.
The growing importance of data will benefit both the companies, Micron and Cisco. Micron will be benefiting from its initiatives in the area of data storage, whereas Cisco has been concentrating on hardware and software market by strengthening its products through acquisitions.
Micron does not look very attractive if we consider its dividends. However, the company’s future prospects look good, given its strategies as well as cost-cutting measures. However, Cisco is definitely a good buy for investors since it has a dividend yield of 3.20% and a trailing PE multiple of 16.52. Hence, both the stocks have their own advantages which investors should take note of.
Stocks Discussed: MU, CSCO,