Micron Technology (MU, Financial) has been on a terrific run over the past few months as the stock has almost doubled since hitting the 52-week low earlier in May.
After three successive quarters of revenue estimates misses, Micron finally managed to report relatively strong fourth-quarter results; the company shared earnings per share of -5 cents, 5 cents better than the analysts’ estimates, whereas revenue came in at $3.22 billion, $90 million better than the estimates.
Though that figure represents a drop of 10.6%, it is still better than the drops of 25%, 30% and 27% year over year in the initial three quarters of 2016. The company works in a single sector as it manufactures memory chips of different kinds. The products manufactured by the company are used in smartphones, tablets, PCs, etc.
Memory plays an important role when it comes to computing power. Micron is a part of a high-class group of leading suppliers; only three firms can claim over 15% of the DRAM chip market around the globe. Moreover, due to the unstable market structure, the company gains an extensive pricing power.
Throughout the past few years, the company has been facing severe problems mainly due to falling NAND and DRAM prices, which together account for approximately 90% of the company’s overall revenue. However, the environment is changing slowly, and Micron has observed a surge in NAND and DRAM prices.
The reason why NAND demand is increasing is because Taiwanese as well as Chinese smartphone manufacturers are escalating the memory content in their devices. Moreover, big companies such as Dell are strategizing to use solid state drive in laptops.
Apart from this, the company has been shifting to 3D NAND Generation 1 technology, and it projects completing a 60% conversion by the end of this year. As a result, with this shift, it anticipates cutting its cost per bit by around 25% next year.
After shifting to Generation 1, the company plans to move toward Generation 2, which will help it cut its costs by another 5%. All in all, the company’s 3D NAND supply is predicted to surge by approximately 70% with the bulk of growth coming next year.
Final words
Going forward, Micron’s prospects look bright. Although the stock has shot up almost 100% in a span of just a few months, it has more upside to offer and is therefore a good buy at current levels.
Disclosure: No position.
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