How Micron Technology Soared to 5-Year Highs

On Wednesday, Micron Technology (MU -4.71%) will release its latest quarterly results. After years of struggling through tough conditions in the memory-chip space, Micron has finally made investors happy, with its stock rising to levels not seen since before the stock market's 2008 meltdown.

The problem that Micron has often faced in the past, though, is that brief periods of positive sentiment have given way to downward cycles in demand for memory chips, making it difficult for the company to make any permanent headway. But could this time finally be different for the company? 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

Source: Yahoo! Finance.

Can Micron Technology's earnings finally make investors happy?
In recent months, analysts have gotten more optimistic about Micron's earnings prospects, reversing initial calls for a quarterly loss and narrowing their full-year fiscal 2013 loss estimates by more than a dime per share. The stock has exploded higher in response, weighing in as one of the S&P 500's top performers of the year and climbing nearly 35% just since mid-March.

Micron started off the quarter on a largely positive note, posting fiscal second-quarter results that included impressive sales growth and better gross margin figures. Revenue from its PC-related DRAM memory surged 24% as the company managed to reduce inventories of the low-margin chips, while the NAND memory that gets used more in mobile technology rose 8%. As the company has been able to reduce its production costs, Micron stands in a better competitive position than it has in the past.

The problem, though, is that Micron needs to boost its prospects if it wants to stand up to its competition. Use of flash memory and solid-state memory drives has greatly increased demand for memory generally, and rivals are working hard to make their own inroads into trying to maximize that demand as long as it lasts. SanDisk (NASDAQ: SNDK) has not only come out with its own solid-state drives but has also teamed up with hard-disk drive giant Western Digital to produce hybrid solid-state hard-disk drives that combine the benefits of solid-state memory with the cost-effectiveness of traditional hard drives. Even Rambus (RMBS -3.68%) has soared to almost two-year highs thanks to a recent victory in getting SK Hynix to settle a patent dispute with the company, helping Rambus to ease the sting of having lost its major suit against Micron last year.

The big prospect for Micron to push higher should come when it closes on its long-awaited acquisition of bankrupt DRAM-maker Elpida's assets. The move should help Micron stand up to giants in the industry like Samsung and Hynix, especially on the mobile side of DRAM, where Elpida has some lucrative relationships to supply memory for popular products like the iPhone and iPad. Micron has waited more than a year for the buyout to be complete, but with signs that the companies are overcoming legal hurdles, it's looking more likely that it will finally happen.

In its quarterly report, watch for Micron to give the latest update on its Elpida acquisition. Even with good times in the memory business, investors have seen the cycles in the industry move up and down too many times to put much long-term stock in the recent upswing without more fundamental signs of strength for the company.

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