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Micron - Benefiting from Data Storage Growth Market

March 24, 2014 | About:
mitu77

mitu77

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The rise in data storage market is phenomenal and this can be a boon for companies providing storage solutions. Micron (MU), a manufacturer of a gamut of products pertaining to storage solutions, is riding high with this market growth. Flash memory (NAND) and Dynamic Random-access Memory (DRAM) are products that are primarily used for storage. These products foresee a high demand for use as storage in computers and servers.

From an investor's perspective, it's interesting to see that micron is focused on cost-cutting measures to improve margins to attain a healthy bottom line. This strategic move was exemplified with Micron blocking all production of LEDs and selling its wafer manufacturing facility in Italy to further push up margins. The prices of DRAM and NAND have been increasing this further add up to margins of Micron. The healthy demand supply is also helping Micron to reduce its inventory. The company is also optimistic for NAND; it anticipates a growth of around 40% in 2104 calendar year.

Financial Performance

The company’s first quarter 2014 results did beat the estimated guidance of the company which was provided in August last year. The results were outstanding.

In first quarter 2014 earnings report, revenue crossed the $4.0 billion mark. The gross margin increased by 7% as a result of cost control measure adopted by Micron. Strong cash flow of $1.5 billion was recorded with capital expense recording $669 million. To safeguard the investor’s interest, the company stays focused on capital allocation policy.

The company emerged with a non-GAAP net income of $881 million beating the estimates of $317 million.

As a result of competition from bigger players, Micron has been decreasing the production of its chips to keep prices stable. This strategic decision reduces the possibility of oversupply and increasing inventory costs, which can damage profits.

Revenue increased by 69% for DRAM and gross margin was recorded in the range of low to mid-30%. This is a 7% increase as compared to the same quarter previous year.

Growth Market

Despite the sun setting on the PC market, the DRAM market is witnessing substantial growth, mainly due to growth in areas like mobile, tablets and most significantly – data centers.

The storage demand is constantly increasing as data centers and servers in the cloud environment require massive storage capabilities. Companies adapting to big data is also creating a huge demand for storage. This is leading to an 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.

Acquisitions that Helped Micron

The company’s acquisition of Elpida that was a struggling DRAM player in Japan proved fruitful as it helped in exceeding the estimated revenue guidance for Micron. This acquisition also increased Micron’s memory portfolio, as it includes a 300mm DRAM fabrication plant. Micron, also acquired 65% stake in Rexchip. Micron is now enriched with the technical staff of Elpida and Rexchip, as a result of which it cut off its employee base by 5%. This cost-saving measure helped the company to attain higher margins while keeping productivity intact.

New Product Release

Micron recently release solid state Drive (SSD) M550. Micron claims this to be the fastest performing SATA SSD’s. This product mainly caters to the growing demand in media and entertainment industry. M550 provides higher seeks time which enables faster access to file and data retrieval. Higher data security can be achieved by use of M550 as it is equipped with hardware encryption facility. The new SSD, provides a better data protection and recovery. M550 will be only available as O.E.M. under the brand name of Micron.

Conclusion

The SSD market has been constantly rising as the demand for storage increases. This market is poised at a growth and revenues is anticipate to cross $19 billion in 2014 that was around $9.0 billion in 2012. Micron is one such company that is going to reap the benefit of this growth. Investors for Technology stocks can always keep an eye on Micron to fit in their portfolio.


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