Will Micron Earnings Get an Apple-Led Lift?

Micron Technology (NASDAQ: MU  ) will release its quarterly report on Tuesday, and shareholders in 2013 saw their shares more than triple on hopes that the memory maker has finally solidified its status as a major player in the mobile and PC DRAM markets. In particular, its acquisition last year of Elpida has allowed it to benefit more from Apple's (NASDAQ: AAPL  ) success, and interesting developments in its often-contentious relationship with Rambus (NASDAQ: RMBS  ) could make Micron's business a little easier to handle, at least on the litigation front.

After years of pricing pressure and other structural problems in the memory market, Micron finally appears to have survived to better times for its core product offerings. Both traditional PC and mobile-device makers have turned to memory for new purposes, and Micron hopes to reap more than its fair share of the resulting business from manufacturers hungry to offer the latest storage and efficiency-enhancing technology. Let's take an early look at what's been happening with Micron Technology over the past quarter and what we're likely to see in its report.

Stats on Micron Technology

Analyst EPS Estimate

$0.44

Year-Ago EPS

($0.27)

Revenue Estimate

$3.71 billion

Change From Year-Ago Revenue

103%

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Will Micron earnings live up to the hype?
In recent months, analysts have gotten less enthusiastic about their views on Micron earnings, having cut $0.02 per share from the November-quarter estimates and having reduced their full-year fiscal 2014 projections by between 3% and 4%. The stock, though, has kept riding higher, climbing 19% since early October.

Micron actually came into the quarter with a rocky start, as its August-quarter earnings report sent the stock falling sharply despite solid revenue growth from both the Elpida acquisition and its buyout of a majority stake in Taiwan's Rexchip. The moves greatly enhanced Micron's ability to manufacturer DRAM chips, and that should translate to greater pricing power and more availability for customers, especially legacy Elpida-customer Apple.

But another key opportunity for Micron lies in NAND flash memory. That's a higher-margin business with even higher growth rates in demand compared to DRAM, as many device makers have integrated flash memory as a key or even sole storage component. Micron expects strong growth for both NAND and DRAM, but the more profitable opportunity from the NAND side of the business should make it a key strategic priority. The company's own solid-state drive business will also be an important catalyst for NAND growth at Micron going forward.

Even with its impressive gains, Micron continues to get attention from well-known hedge funds and other institutional investors. In November, Greenlight Capital's David Einhorn cited the pricing capacity Micron has in the DRAM market as justifying much higher prices, and analysts have noted that even with the share price having soared, Micron's forward earnings multiple has actually fallen in recent months.

One thing Micron should no longer have to worry about is its long-fought legal battle with Rambus, which it settled in December. The agreement will have Micron paying Rambus up to $10 million per quarter for the next seven years in exchange for broad-based patent licensing rights. Rambus soared on the deal, but eliminating the nuisance value for Micron has to have some value for its investors as well.

In the Micron earnings report, watch to see if the company is starting to use its pricing power to reduce DRAM supply in an effort to send prices higher. Now that it has enough market share to move the overall market, Micron could squeeze more profits from the memory market if it plays its cards right.

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