) fits the bill for investors. The company makes three kinds of
semiconductor memory: NAND (44% of 2012 revenue), DRAM (39%), and
NAND flash-memory chips are compact, energy efficient, and capable
of storing electronic data even when the power is switched off.
These qualities make NAND flash-memory the preferred solution in
smartphones, tablets, and ultra-thin laptops equipped with
shock-resistant solid-state drives.
DRAM is an older memory technology that's still used in many PCs
and servers. Though less expensive than NAND, in terms of cost per
storage capacity, DRAM is volatile memory that loses data quickly
when powered down.
Once Micron Technology's most important product category, DRAM has
shrunk to 39% of the firm's revenue, from about 60% in 2010. NOR
flash-memory chips, which can be easily erased and reprogrammed,
feature prominently in smartphones, automobiles, and industrial
Our investment thesis for Micron Technology rests on three pillars:
rapidly growing demand for memory, reduced competition from
industry consolidation, and a focus on rolling out new technology
that should limit manufacturing capacity and prevent an oversupply
over the next few years.
Robust demand for lower-end smartphones in emerging markets may
pressure average handset selling prices, but this growth trend is
big business for memory producers.
Not only are shipments of smartphones and tablets increasing, but
the amount of memory in the average device is also on the rise, as
consumers demand more capacity and capabilities from their
Since 2011, the capacity of NAND flash-memory in the average mobile
phone has more than doubled to almost ten gigabytes (
). Over the same period, the storage capacity of solid-state drives
(flash-memory that functions as a hard drive) in laptops has jumped
to more than 130GB from 84GB.
Whereas demand for flash-memory is on the rise, the supply of these
chips remains constrained, because depressed prices and profit
margins dissuaded producers from investing in additional
We prefer Micron to
(TYO:6502) because the stock is a pure play on memory. Moreover,
the company sports a debt-to-equity ratio of just over 40%,
compared to about 58% for Hynix.
Micron Technology is also participating in industry consolidation
through its $2.5 billion acquisition of
(TYO:6665), which is slated to close before the year-end.
With the addition of Elpida Memory, Micron will overtake Hynix to
become the second-largest DRAM player by market share.
Our firm is adding Micron Technology to our Wealth Builders
Portfolio. Prospective investors should be aware that the stock can
be prone to volatility, though the risk-reward balance appears
favorable at present.
Robust prices for memory, coupled with the acquisition of Elpida
Memory, could propel the stock to about $20 per share over the next
Editor's Note: This article was written by Elliott Gue of
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