Can Micron Technology Continue to Outperform?

Michael Teague |

To kick off the last trimester of the year, last week Equities.com took a look at 2013’s best and worst performing stocks on the Standard & Poor’s 500 index.

Among the less familiar names on the list of year-to-date winners is the Boise, Idaho-based producer of memory chips, Micron Technology (MU) . The company is listed in the technology sector as part of the semiconductor-memory chip industry, and without a doubt the stock has had a big year.

Monday saw the company’s shares close on a gain of 2.33 percent at $15.61 apiece. If that price seems diminutive, however, one need only consider the stock’s 150 percent advance from a starting point below $7 in the early days of January.

All six companies listed in the semiconductor/memory-chip industry hold average analyst ratings of “buy or better”. But with a market cap just shy of $16 billion, Micron is the largest in the pack with sixteen times the share of the market than its nearest competitor, the $1 billion Rambus Inc. (RMBS) . Spansion Inc. (CODE) is the third-largest at $640 million, followed by Integrated Silicon Solution Inc. (ISSI) , about half the size at $318 million. The list is rounded out by Netlist Inc. (NLST) and SemiLEDs Corporation (LEDS) , $27 million and $25.5 million respectively.

With the exception of Spansion, a company that has seen its stock lose about one fifth of its list price this year, the memory chip industry has had been on a robust upward trajectory. The S&P North American Technology Semiconductors Index has outperformed the S&P 500’s 17 percent advance in 2013 with its own 23.4 percent jump. More specifically, the six companies in the memory-chip subset of the semiconductors industry are up on average some 44 percent on the year.

Certainly, Micron is benefitting from more favorable business conditions; the memory chip market has benefitted greatly from the tech sector's shift towards mobile and cloud computing. This is in part due to the growing demand for NAND (Negated AND or NOT AND) products. One of Micron's rivals, Applied Materials (AMAT) , estimates that the market for NAND products will have expanded 50 percent by the end of 2013. Meanwhile, the research website iSuppli estimates that shipments of NAND conductors for tablets alone to rise to over 12 billion gigabytes this year.

During the recently ended third quarter, during which the company saw a sequential 12 percent increase in net income to $43 million, NAND shipments constituted some 60 percent of the company's trade NAND capacity, and Micron believes this trend will continue for the near future.

Micron has also positioned itself to take advantage of the increasing demand for DRAM memory chips, and especially mobile DRAM memory chips. It's acquisition of the company Elpida this past July has made it the second-largest actor in the expanding mobile DRAM market. As PC-use falls by the wayside, smartphone and tablet products are set to take up about 28 percent of the overall DRAM market this year, doubling up on 2012's 14 percent of the market. Prior to the Elpida purchase, Micron was generating less than 10 percent of its revenue from mobile DRAM.

The only possible problem for Micron, looking forward, is probably competition. The company is a rare publicly traded semiconductor "pure play", meaning that its business focuses entirely on memory semiconductors. And while the growth for demand of NAND and DRAM technology is set to increase over the next year, there are plenty of other players with skin in the game. Companies like Samsung (SSNF) , Toshiba (TOSBF) , and SanDisk (SNDK) all make their own memory chips, which is especially significant given that Samsung currently makes the world's most popular smartphone. Still, most of these larger companies make chips for their own products, and wouldn't theoretically be in the way of Micron's promising future.

 

[Image Courtesy Of Wikimedia Commons]

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
RMBS Rambus Inc. 12.76 0.09 0.71 397,420
SNDK SanDisk Corp. n/a n/a n/a 0
ISSI Integrated Silicon Solution Inc. n/a n/a n/a 0
AMAT Applied Materials Inc. 31.44 1.34 4.45 15,229,645
LEDS SemiLEDS Corporation 4.35 0.06 1.40 37,685
MU Micron Technology Inc. 18.79 0.31 1.68 25,887,613
KMKGF Kaminak Gold Corp n/a n/a n/a 0

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