Why Micron Earnings Will Need to Be Dazzling

Micron Technology (MU 0.23%) will release its quarterly report on Thursday, and shareholders have already enjoyed stock-price gains to highs that go back all the way to the end of the tech bubble in the early 2000s. With Micron earnings seen reversing year-ago losses with a powerful profit, can the company produce the lasting growth it will need to outperform SanDisk (NASDAQ: SNDK) and Rambus (RMBS +4.60%)?

For years, Micron was stuck under tough conditions in the memory industry, which suffered from overcapacity and a lack of demand. Recently, though, the rising popularity of solid-state storage and flash memory has reversed the industry's woes and led to big rebounds for Micron and its peers. Does the company have what it takes to continue its impressive recovery? 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 earnings continue their winning streak?
In recent months, analysts have gotten downright giddy about the future prospects for Micron earnings. They've boosted August-quarter estimates by $0.05 per share, but they've more than doubled their calls for full-year fiscal 2014 earnings. The stock has shown equally sharp gains, climbing nearly 30% since early July.

Micron has enjoyed a string of successes that together have helped bolster its future potential substantially. Rising demand has lifted prices of dynamic random-access memory and NAND flash memory, supporting the company's net income. Moreover, higher shipment volumes and lower costs should produce improved margins and further boost profits. Micron has also benefited from problems at rival SK Hynix, which suffered a factory fire last month that hurt production.

Much of Micron's revenue boost has come from its acquisition of former competitor Elpida. The Japanese rival filed for bankruptcy last year, and its lucrative relationship with Apple in supplying memory chips for smartphones like the iPhone 5 made Elpida an obvious pick-up for Micron. With reports that the new iPhone 5c uses Elpida memory, Micron's rationale for buying the company could well pan out for its earnings going forward, although a teardown of the iPhone 5s shows SK Hynix NAND flash memory.

To a large extent, Micron's rivalry with Rambus calmed down substantially after Micron won its suit against its rival chipmaker last year. Yet Rambus has made partnerships of its own, seeking to reestablish itself as a major force in the memory-chip industry.

As nice as a rebound for memory chips is for Micron, the future of solid-state drives will be crucial for the company. SanDisk has jumped onto the solid-state drive bandwagon, driving about 20% of its revenue from the technology that has largely replaced hard-disk drives for high-end storage needs on notebook computers. Even traditional hard-drive manufacturers have embraced solid-state drives as the wave of the future, and Micron has a big opportunity to work with customers like Apple and Hewlett-Packard to push their respective technology levels forward.

In the Micron earnings report, watch to see if the company can keep benefiting from the long-awaited turnaround in the industry. With such high expectations, anything short of solid results could be a big disappointment.

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