Micron Technology (NASDAQ:MU) reported fourth-quarter earnings Thursday night. The memory-chip builder missed analyst targets on both the top and bottom lines. And yet, the stock jumped as much as 3.8% on Friday while major market indexes traded down.
Neat trick, right? Let's find out how Micron pulled off this remarkable stunt.
Wall Street expected sales to run flat year over year, but they dropped 8.3% on plunging unit prices. CEO Mark Durcan pledged to reduce costs and move sales into more premium market segments, which seems like a reasonable plan of attack for the falling price problem.
Now, the proposed acquisition of bankrupt memory maker Elpida seems to run counter to that strategy. Elpida specializes in DRAM memory chips, a sector that Micron pointed out as the weakest price performer this quarter. "Improvements in margin from sales of [flash memory] products were offset by declines in margins from sales of DRAM products," the press statement said.
But the Elpida deal would give Micron some serious economies of scale in the DRAM market. Right now, the market is flooded by chips from Elpida, Toshiba, and Samsung, with minor contributions from Micron and others. Toshiba and Samsung may be market leaders here, but their operations range far and wide -- memory chips are not make-or-break products for them. So it's no big deal if this unimportant sector suffers some imbalance in the supply-and-demand equation.
With Elpida's capacity at its side, Micron gains the power to control the ebb and flow of DRAM chips to a much larger degree. Thus, the company will be able to protect its DRAM margins in the long run. On top of that, Elpida happens to be a huge provider of mobile DRAM chips, including a choice placement in the Apple (NASDAQ:AAPL) iPhone and iPad lines. Micron would be crazy not to chase that trillion-dollar market.
There you have it -- Micron's sales face pricing headwinds right now but management has a plan to correct the problem. Micron is down but not out.
If this company plans to ride Apple's coattails, you'd be wise to find out more about the iPhone designer's prospects. In our latest premium research report, our analysts have dissected the tech giant from every angle, giving you the opportunities and pitfalls that Apple will face. For less than the cost of a week's worth of coffee you, too, can gain an investing edge. Click here to get this premium report on Apple.
Fool contributor Anders Bylund owns shares of Micron but holds no other position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have also recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.