Micron: Demand for DRAM

03/10/2015 7:00 am EST

Focus: STOCKS

Charles Mizrahi

Editor, Park Avenue Investment Club and Inevitable Wealth Portfolio

This featured buy recommendation is one of the world's leading providers of advanced semiconductor solutions; it manufactures and markets a full range of DRAM, NAND Flash, and NOR Flash memory, suggests Charles Mizrahi, editor of Hidden Values Alert.

Micron Technology (MU) was founded in 1978 in a basement of a dentist’s office. The company started as a semiconductor design firm with the goal of eventually manufacturing their own chips.

In 1980, they received financial backing from J.R. Simplot (founder of the largest shipper of fresh potatoes in the US) and Allen Noble. The company went public in 1984. 

Two products make up more than 90% of the company’s sales: DRAM and NAND flash. DRAM is the memory that is inside a PC/laptop computer.

Mobile DRAM is memory designed for smart phones, GPS devices, and handheld devices. Micron's market share of the DRAM market is currently 29%. We project that Micron’s share of the market could increase through acquisitions.

NAND flash is memory used in typical USB drives or mobile flash cards, which made up 27% of the company’s sales in 2014.

Demand continues to be robust. Tablets and mobile devices are driving demand for DRAM and NAND flash memory.

Micron lowered its revenue estimate for the next quarter, not because of weakening demand, but instead due to upgrading its production lines with new technology.

Over the short-term this will impact revenue and earnings, but Micron is taking short-term pain for long-term growth.

They are implementing this during a seasonally slow demand period. Micron’s SDRAM memory chip is one of two manufactures that are used in the iPhone 6.

The company's target model going forward is to see an expansion in enterprise storage, mobile, and servers. During the last quarter, revenue was up 8% from the previous quarter, gross margins increased from 32% to 36%, and they generated close to $1 billion in free cash flow. 

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