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Pricing and cost trends in the NAND and DRAM industry have been positive so far this year, while demand has remained strong. As such, it doesn't come as a surprise that Micron Technology (NASDAQ: MU ) has continued its market-beating performance this year.
The Apple (NASDAQ: AAPL ) supplier has also received a vote of confidence from David Einhorn's Greenlight Capital. So, it will be interesting to see if it continues to remain a good buy going into its second-quarter results, which are expected to come out on April 3 (according to Yahoo! Finance).
Micron doesn't release any guidance specifically, and this has lead to volatility in the past. However, given Micron's rich vein form and positive underlying factors in the industry, yet another outstanding performance cannot be ruled out.
The bar has been set very high this time as revenue is expected to jump 91% year-over-year to $3.98 billion and earnings are expected to jump to $0.74 per share from a loss of $0.28 last year. But then, since Micron has closed the Elpida acquisition, these numbers don't look out of reach, just like last time.
What could be next?
As I said above, Micron doesn't issue guidance numbers, but it isn't difficult to understand why the stock continues to be a solid pick despite 160%-plus gains in the last one year.
First, the dynamic random access memory (DRAM) industry is expected to chug along nicely in 2014. The global DRAM market is slated to rise 12% this year to $39.5 billion, and Micron's Elpida acquisition places it in the driver's seat to tap this growth. Micron is the second-largest player in the DRAM industry, behind Samsung, with 28% of the market.
Moreover, positive pricing trends in DRAM are seen going forward, with suppliers keeping inventories under control and the fire at SK Hynix's Wuxi fab leading to further supply constraints. The introduction of DDR4 this year will provide another boost to DRAM pricing. Micron was one of the first chip makers to sample its DDR4 solution to customers and chip partners. Since it commands a sizable share of the industry, it is in a prime position to profit from this new development.
In addition, the global mobile DRAM market has exploded in recent times, with the trend likely to continue going forward. TechNavio believes that mobile DRAM will grow at an annual rate of 10.4% from 2013 to 2018, driven by their adoption in smartphones. This is another driving factor for Micron as Fool contributor Piyush Arora recently pointed out.
According to Arora, Micron is one of those suppliers that could benefit from a surge in iPhone sales. The iPhone 5c and 5s carry DRAM from Elpida, and Micron is leaving no stone unturned in landing the design win for the next generation as well. As mentioned above, Micron has already started testing its DDR4 memory, which is 60% faster and consumes 40% lesser power than DDR3. This is what will matter the most when Apple taps the DRAM supplier for its next iPhone(s).
If Micron does land the design win for the next iPhone(s), then it should see its addressable market increase since the Cupertino-based giant is slated to launch bigger-screen smartphones to appeal to Asian customers. In addition, Apple is rapidly increasing its reach by signing up more carriers, with CEO Tim Cook stating earlier this year that the company will bring 50 carriers on board across the globe.
NAND improvements and innovation
Looking at the NAND side of Micron's business, the growing adoption of solid-state drives (SSDs) is supposed to be a key growth factor. Micron reported a design win in this department on the last conference call, stating that it shipped its first 20-nanometer enterprise drive to a key equipment manufacturer. Its products have received acceptance from various other OEMs as well, and Micron is looking to strengthen this segment further by introducing a 60-nanometer client drive.
Also, Micron's move toward a 20-nm DRAM platform is expected to enhance its margins, while also boosting adoption at the same time. Along with the move to a low-powered and more efficient DDR4 platform, Micron has placed itself in a solid position to deliver consistent earnings growth going forward.
Although the bar has been set high for Micron, the Elpida acquisition and its strong position in the industry make it possible for the company to at least meet estimates for the second quarter. And as far as the way ahead is concerned, there aren't many red flags that make Micron a risky investment right now. In fact, the stock trades at a trailing P/E of just 14, which is very impressive considering its robust earnings growth.
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