The adoption of smart devices has led to massive increases in productivity and lifestyle change. While it has slowed growth of some industries, like personal computers, it has given birth to new businesses and accelerated the growth of existing ones. The memory market is one such business that is witnessing positive changes as a result of this evolution, among other factors like a surge in average selling prices of DRAM chips and healthy demand fluctuations.
Micron's bright days are here
Micron (MU 4.89%), one of the largest semiconductor manufacturers, reported robust results for the fourth quarter of fiscal 2014. This reinforced the outlook for a sustainable turnaround. The acquisition of Elpida and Rexchips happened at the most appropriate time, as it has provided Micron with much-needed additional production capacity to benefit from the revival and growth of overall demand. The acquisition of Elpida has made Micron the second-biggest player in the semiconductor business with roughly 28% of the market share.
Taking off with Elpida on board
Someone rightly said that when the time is right, all things seem to fall in place. The fire at the SK Hynix facility in China amplified Micron's luck and accelerated its turnaround efforts. While the fire fortunately did not result in any casualties, it did enough to disrupt the company's production cycle for almost a month. This incident pushed up the prices of DRAM memory chips by approximately 5%, as highlighted by the company. The elevated price level will persist for a considerable time and will enhance revenue in coordination with growing demand.
In addition to boosting production capacity, one of the big advantages of Elpida's acquisition comes from increased penetration in mobile DRAM markets. As this article states, the demand for mobile DRAM chips is poised to increase approximately 70% on a year-over-year basis in the fourth quarter of 2013 because of the upcoming holiday shopping season.
As I mentioned, the era of smart devices has offered a massive opportunity for expansion to the chip makers. Elpida's specialization in mobile DRAM chips and a strong R&D facility will help Micron in reaping big gains at the right time.
The market leader: Samsung
The market leader in DRAM markets, Samsung (NASDAQOTH: SSNLF), is gearing up for the holiday season by employing considerable resources to produce chips. Its dominance in the smartphone as well as semiconductor markets is expected to offer an unimaginable amount of scope, generating massive revenues in the fourth quarter. It is only prudent that Samsung focuses on its semiconductor business, as the price rise caused by the fire shall persist for a few months and will generate big gains for the giant that has not been fully serious about the semiconductor business till date.
In terms of smartphones, it is expected that Samsung will launch the Galaxy S5 early next year. The Galaxy S4 failed to pick up expected sales numbers, and the launch of Apple's iPhone 5s and 5c in September made matters worse for the Korean giant. A score of reports were full of praises for the iPhone 5s and its sales justified all of the claims. Samsung will have to come back with an equally valuable product to offer solid competition to Apple.
Why Sandisk matters
Sandisk (NASDAQ: SNDK), a big player in flash memory storage solutions, is also working hard in order to widen its market reach. The company hopes to do this by innovating on products in addition to expanding into new product markets. The company has adopted an inorganic growth strategy by acquiring SMART Storage Systems, opening up the enterprise storage solutions market for the company.
The company has also successfully created the fastest memory card to date, surely making identical products look slow and obsolete. We will have to wait and see whether Sandisk will be able to efficiently execute its expanding product portfolio and establish a considerable reputation in the enterprise storage solutions industry. Its success would have a considerable impact on future stock movements.
Final take
Micron's stock price has really popped over the last year. Among other reasons, it is the stability of its improved operations that's compelled investors to stay invested in the stock.
Micron's plan to start paying its acquired debt (especially to fund Elpida's acquisition) will lead the company to a comfortable position for funding future operations. Additionally, management is drawing up adequate plans for CapEx timing over the remainder of fiscal 2013 and fiscal 2014. A good timing strategy around CapEx and debt repayment would ease the pressures on its cash balance.
The acquisition of Elpida and buyout of controlling interest in Rexchips, coupled with improving demand conditions, has charted a success path for Micron. The management's commitment to maximizing shareholder value is a big bonus as well.
