Micron Technology, Inc. Earnings: How Far Can Memory Growth Soar?

On Monday, Micron Technology (MU 0.28%) will release its quarterly report, and shareholders have high hopes that the memory maker will keep riding the wave of excitement about solid-state drives and other flash-memory applications to bring more growth to the company. But as competition heats up with SanDisk (NASDAQ: SNDK), Seagate Technology (STX), and other memory and storage rivals, Micron will have to keep its growth in overdrive in order to justify the huge gain in share price that the stock has experienced during the past year or so.

Not so long ago, Micron looked poised to be a victim of intense price wars for memory chips. Over time, though, the industry has consolidated, leaving Micron as one of the last survivors, giving it much broader scope than it had in the past. As a result, margins in the industry have been on the rise, and Micron's profits have jumped accordingly. But the big question Micron faces is whether its strong earnings will last well into the future, or whether a coming price war might, once again, send Micron scurrying for survival. Let's take an early look at what's been happening with Micron Technology during the past quarter, and what we're likely to see in its report.

Source: Micron Technology.

Stats on Micron Technology

Source: Yahoo! Finance.

How fast can Micron earnings climb?
In recent months, investors have gotten more excited about Micron earnings, raising current fiscal-year estimates by 4%, and next year's projections by more than 7%. The stock has kept rocketing higher, posting a 30% gain since mid-March.

Micron's fiscal second-quarter earnings in early April showed just how strong the memory-chip maker's growth has been lately. Revenue nearly doubled from year-ago levels on the heels of Micron's acquisition of Elpida last year, but even on a sequential basis that removes the impact of the buyout, a 2% rise in sales sent earnings up 10%. Volume of NAND flash memory soared 35%, more than offsetting lower prices, and showing the continued huge appetite for the chips, which has led Micron to start shifting DRAM production facilities to make NAND memory instead.

Source: Micron Technology.

But Micron still faces plenty of competition. SanDisk recently said that it expected to start using 15-nanometer manufacturing process technology, giving it a competitive cost advantage over Micron's 16-nanometer process. The rise of three-dimensional NAND memory technology is a wildcard that could create further opportunities for chipmakers to beat out their rivals in coming years. Meanwhile, in the solid-state arena, Seagate's acquisition of SandForce should make it a bigger player in the solid-state drive business, even though Seagate doesn't have Micron's benefit of building its own NAND chips.

Another question that Micron will have to answer is what it will do when demand for memory starts to plateau again. For now, trends in the smartphone and tablet space still emphasize an overall rise in memory usage, supporting demand as users continue to upgrade. At some point, though, Micron will face the threat of consumers choosing not to upgrade their devices as quickly, and that could lead to falling prices and weaker profits both for Micron and for competing technology from SanDisk, Seagate, and others.

In the Micron earnings report, watch to see whether the pace of the memory maker's growth can continue. With shares having climbed so far so quickly, anything short of the best possible news could throw cold water on shareholders' hopes.

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