Chipmaker Micron Technology (MU) has been on a tear this year. The stock is up almost 170% on the back of a number of tailwinds. An increase in DRAM (dynamic random access memory) and NAND flash memory prices, along with a jump in shipments, has helped Micron improve its earnings substantially, leading to lofty analyst estimates in the process.
...but Micron Can Live Up to Them
Micron's fourth quarter would include revenue from its acquisition of Elpida and Rexchip, so a higher revenue figure cannot be ruled out. Elpida supplied DRAM to Apple (AAPL) for the iPhone 5s last year and it may have this time as well.
Micron management stated during its previous conference call that its mobile DRAM offering was being tested by "top smartphone manufacturers." Also, management remains "very excited" about the Elpida acquisition and claimed to "receive strong support from top mobile customers." Hence, as Apple's iPhone 5c and 5s production ramped up, Micron should have witnessed more business from Cupertino.
Then there's the expected increase in the average selling prices (ASPs) and the decline in bit costs. Micron expected ASPs to increase in the mid-to-high single-digits, sequentially, in the fourth quarter and production volume to increase. In NAND, bit costs should have been down in high single digits while shipment volume was expected to increase.
Thus, with a combination of higher shipments and lower costs, and results of both Elpida and Rexchip included, Micron's fourth-quarter performance might turn out to be robust.
A Positive Outlook May Be in the Cards
Management's comments, as seen above, indicate that it may have landed a spot in the latest iPhone(s) through its Elpida acquisition. While there might be concerns about Apple not releasing pre-order numbers for the iPhone 5c, it should be considered that this is new business for Micron.
Assuming that Micron landed a spot in the iPhones through its Elpida acquisition, it would probably be able to offer solid guidance figures as Apple ramps up production going into the holiday season.
Moreover, prices of memory chips have increased 19% this month, according to Bloomberg, after SK Hynix's factory in China caught fire earlier this month. Given that SK Hynix accounts for around a third of the world's DRAM chip production, a disruption like this is bound to push prices higher and benefit peers such as Micron.
Micron is also witnessing solid growth in sales of solid-state drives (SSDs) and has been ramping up production of its NAND chips as a result. Going forward, the company should continue to benefit from SSD growth. SSD shipments are expected to grow at an impressive annual rate of more than 30% for the next three years and then in the high teens from 2017 onward, according to iSuppli.
The Bottom Line
Micron's reliance on its PC-related end markets is gradually coming down. Given the opportunities that the company has in mobile, networking and SSDs, along with improving prices, the guidance for the ongoing quarter shouldn't be ruled out.