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Micron Technology: Profit from Data Growth
Posted by: jaggom (IP Logged)
Date: May 27, 2014 09:37AM
The growth of community websites, Internet-enabled handheld devices, smartphones and Wi-Fi corridors are driving growth of Internet traffic, thus creating potential opportunities for various companies engaged in delivering web-based solutions. Also, it is estimated that annual IP traffic will reach 1.3 trillion gigabytes by 2016.
In addition to this, the cloud computing market was forecast to expand 19% to $131 billion in 2013 and is estimated to grow notably in 2014 as well with the advent of cloud computing. This has created a big market for software and hardware companies. However, the companies must understand that the demand for cloud computing is immense and the initial adoption by customers could be slow since data security is causing significant concerns for many of the customers around the world.
The cloud market has been a blessing for many giants that provide various solutions like storage, cyber security software, and business solutions software. Micron Technology (MU) is one such stock.
The boom in the data center is leading to potential growth in the storage market and benefiting companies like Micron that manufacture and design an array of products used in data storage. Also, the company is benefiting in a big way from its products such as flash memory (NAND) and dynamic random-access memory (DRAM) that are used for storage. These products are in high demand.
Also, it’s very interesting to observe that Micron is consistently improving its margins through practicing various initiatives like cost-cutting synergies and price competitiveness that make it good pick for investment. For example, Micron stopped the production of LEDs and sold its wafer manufacturing facility in Italy to push up margins. It also improved its profit by increasing prices for NAND and DRAM memory.
As a result, its revenue grew $2.3 billion in the recent quarter from $2.1 billion in the preceding quarter. Also, its profit zoomed to $43 million from a net loss of $286 million in the same quarter a year ago.
Furthermore, to remain competitive in the market, Micron has been decreasing the production of its chips to keep prices stable. This strategic move will certainly reduce the possibility of oversupply and increasing inventory costs, which could damage profits. Moreover, despite a 16% price hike, the company's sales of DRAM and NAND chips increased 6% and 7%, respectively. Despite the PC market slowing down, the DRAM market is witnessing appreciable growth, mainly due to growth in areas like mobile, tablets and most significantly — data centers.
The Data Center Opportunity
Data centers and servers require massive storage capabilities, which in turn has led to increased demand for Micron’s new SSDs (solid state drives). Micron's P400m can allow a single server to manage storage data in petabytes (1048576 Gigabytes). Micron P400m signifies the company's intention of tapping the big data market.
Apart from this, Micron recently announced its acquisition of Elpida, which was a struggling DRAM player in Japan. The acquisition has boosted its memory portfolio, as it includes a DRAM fabrication plant. In addition, the company also acquired a 65% stake in Rexchip. Micron is now enriched with the technical staff of Elpida and Rexchip, as a result of which it is cutting 5% of its employee base. This is a cost-saving measure that should lead to higher margins while keeping productivity intact.
Micron is positioned to benefit from the growth of data as a result of the data boom. The company's cost-cutting moves and prospects in storage look good, and that's why investors should take a look at it.
Stocks Discussed: MU,