Did Micron Technology Just Become a Screaming Buy?

Investors believe that Toshiba unwittingly handed Micron Technology (Nasdaq: MU  ) a huge victory when it suffered a brief power outage earlier today.

According to reporting by The Wall Street Journal, a plant charged with manufacturing NAND flash for smart devices such as the iPad and iPhone suffered a 0.07-second power disruption that backup systems couldn't fully account for.

Normal operations are expected to resume tomorrow, the Journal reports, but lost productivity could result in a 20% cut in Toshiba's NAND shipments to customers over the next two months. That's where Micron comes in.

Samsung and Toshiba dominate the market for NAND flash, but Micron and production partner Intel (Nasdaq: INTC  ) are also significant players. With shares of Micron up more than 3% as I write this, investors are betting that a fall-off in Toshiba's shipments could win Micron more business from Apple (Nasdaq: AAPL  ) and Hewlett-Packard (NYSE: HPQ  ) , among others.

Both are already Micron customers, but the prospect of additional Apple business has to be most tantalizing. Apple pre-bought $500 million worth of NAND flash from Toshiba last year. If the company proves unable to meet demand over the short term, the Mac maker may need to find alternative suppliers.

SanDisk (Nasdaq: SNDK  ) could also take a hit, according to my Foolish colleague Eric Jhonsa. A leading supplier of NAND-based microcontrollers, the company has a joint venture with Toshiba that supplies flash at cost.

"A major drop in Toshiba's output could make SanDisk supply constrained over the near term," Eric wrote in commenting on the news. I think he's right; I also think Micron offers the better opportunity for investors.

Thanks to the iPad, iPhone, and a bevy of other smart devices, NAND is an important and fast-growing market. Neither Apple nor any of its competitors can afford a slowdown in shipments for long. My guess is this experience may get them thinking about further diversifying their supplier lists, and Micron is sure to be one they consider.

Now it's your turn to weigh in. Is Micron Technology poised to profit from Toshiba's misfortune? Please vote in the poll below and then leave a comment to explain your thinking.

Interested in more info on the stocks mentioned in this story? Add Micron Technology and Intel to your watchlist.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He had stock and options positions in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is feeling taller today. Strange.


Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 09, 2010, at 6:00 PM, russfischer1013 wrote:

    I suppose Toshiba could throw away nearly everything in process at the time of the power outage....or it might have little to no effect.

    In any case it will cause prices to increase and Micron to benefit.

    I've often thought (kind of a dumb thought) that if any OEM should buy a memory mfr it would be Apple. The iPhone and iPod are, to a large degree, sales vehicles for NAND flash memory.

    Basically Apple gets $100 for an increment of 32GB of flash memory that costs them about $45-50.

    Apple is exquisitely sensitive to flash memory price.

    Between NOR and NAND flash and DRAM (all of which Micron makes), Apple probably consumes $10-12 billion in memory. That is just about the output at resale of Micron.

    Apple should own Micron for self preservation.

  • Report this Comment On December 10, 2010, at 12:09 AM, flashfinancials wrote:

    Re the comment about Apple buying a flash supplier...

    Apple has supply agreements with more than one major supplier. (interesting note...they were an original investor in the Micron-Intel NAND joint venture, instead of getting money out of it they did it to receive a steady supply of flash memory.) Apple is not interested in owning and trying to profit from making NAND, they are more interested in making it a readily available commodity. They'd rather have someone else make it cheaply for them, while they focus on the high-value-add portions of their products. They don't make money from manufacturing...they make money from designing products that people want to buy.

    Take a look at AAPL's balance sheet. They have <5B in PP&E, a pittance for a company with about 65B in annual revenue. Manufacturing is not their forte. Compare that to MU...PP&E of about 7B with revenue in annualized range of about 9B...manufacturing is their forte. Completely different business model. You could argue they are complementary...but AAPL is so far disconnected from directly owning manufacturing that they would not add value to owning a memory company. They are better off letting someone else focus on manufacturing while they focus on consumer end products.

    AAPL would rather have multiple competitors in the NAND space oversupply the market, drive down memory prices, and boost AAPL's sales and profits. This is why I believe they invested in the Micron-Intel flash fab.

    Unlikely AAPL would seriously consider owning a semiconductor manufacturer, but that said...hey, sometimes management can get a little crazy and defy most logic with a lot of cash on the balance sheet. It is more likely that they would make targeted joint venture/supply investments.

  • Report this Comment On December 10, 2010, at 3:37 PM, hiho131 wrote:

    Simple Question

    Does Micron have the capacity to use this opportunity?

    I say NO...

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