The Memory War Is Over!

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The light at the end of the tunnel isn't always an oncoming bullet train. Sometimes it's simply daylight at the end of a long, dark night.

Computer memory maker Micron Technology (NYSE: MU) is enjoying that cheery kind of daylight today. The entire memory market has been mired in oversupply and weak demand for more than two years now, forcing the entire industry into a destructive price war. And now, the war is over. At the very least, we're looking at a cease-fire.

Micron reported much stronger memory sales in the fourth quarter than the third, whether you're looking at unit volumes or dollar sales. Average selling prices actually increased for once, and management talked about improving markets and increased demand.

That still wasn't good enough to pull Micron out of the red ink. Micron reported a net loss of $88 million or $0.10 per share, and the full-year net loss added up to $1.8 billion. But Micron runs a capital-intensive business, and $2.1 billion of that annual loss came from depreciation and amortization of those expensive manufacturing facilities. Micron doesn't use third-party manufacturing specialists like United Microelectronics (NYSE: UMC) or Taiwan Semiconductor Manufacturing (NYSE: TSM), but builds and runs top-notch facilities of its own. Along with JV partner Intel (Nasdaq: INTC), Micron is ready to deliver 34-nanometer NAND drives that keep it at the forefront of memory technology.

When you back out those massive infrastructure costs from years past, Micron is doing surprisingly well. Operating cash flow stopped at $357 million in the fourth quarter and $1.2 billion for the full year. And because the memory industry at large is trying to stem the tide of huge oversupplies, current capital expenses are small and free cash is flowing in healthy amounts.

I think it's safe to say that the memory sector is a safe place to invest again. Unfortunately, market consolidation and a few bankruptcies have left us with precious few stocks to choose from. Micron and SanDisk (Nasdaq: SNDK) are the only easy answers, as Intel has distanced itself from memory chips, Samsung can be purchased by those with access to the Korean market, and everyone else is a high-risk penny stock at best.

Micron's stock price has tripled in 2009, and SanDisk’s has doubled. Is it too late to jump aboard the memory bandwagon, or will this stock bounce higher still? Discuss in the comments below.