After releasing its third-quarter results, Apple (AAPL +1.05%) component supplier Micron Technology (MU +5.00%) can boast of an enviable record. The company has now delivered year-over-year sales growth for six quarters in a row, along with five consecutive quarters of profit jumps. Micron is benefiting from conducive trends in the DRAM and NAND industry, and its acquisition of Elpida last year has been key to its solid performance.
The consolidation of the memory industry has led to controlled supply of memory chips, which is why players such as Micron have seen a solid resurgence. In an interview with The Wall Street Journal, Micron President Mark Adams pointed out that no one in the industry is expected to add supplying capacity.
This indicates that Micron should continue benefiting due to the industry's dynamics going forward. Since its memory chips are in good demand, favorable pricing cannot be ruled out. Micron's chips are applied across several verticals such as smartphones, servers, and automotive. As such, the company is positioned to benefit from different end-markets.
DRAM growth to continue
Micron's dynamic random-access memory, DRAM, business accounts for 69% of its top line. Driven by growth in various applications, the DRAM business has grown at a solid pace in recent times, with mobile being the primary driver.
According to TrendForce, mobile DRAM accounted for almost 30% of global DRAM industry revenue in the first quarter, up 34% sequentially. Micron made the most of this growth, as its mobile DRAM market share increased 3.7 percentage points to 26.7% at the end of the first quarter, making it the second-biggest player in the industry. In comparison, the market shares of both Samsung and SK Hynix, Micron's prime competitors, declined.
The adoption of mobile DRAM in smartphones and tablets is expected to rise in the second half of the year, driven by the launch of mobile devices by key players such as Apple. The key point here is that Apple has been using DRAM from Elpida, which is now Micron Memory Japan, for different products such as the iPhone and the MacBook.
As discussed in a recent article, Micron seems to be on track to land a position in the upcoming iPhone 6. The company is working on a 20-nanometer mobile DRAM platform, which is the same size as Apple's expected A8 processor. However, there is more to the Apple-Micron relationship than just the iPhone.
According to DRAMeXchange, Apple's MacBook Air and MacBook Pro, equipped with LPDDR3, will consume a substantial portion of Micron's DRAM. Apple's MacBook line has made a big dent in the PC industry, and sales are surging even in a weak PC market. In the fourth quarter of last year, Mac sales in the U.S. increased 28.5%, according to Gartner, as Apple's market share in PCs increased 3.8 percentage points year over year.
Apple is expected to upgrade the 2014 MacBook line with its new software, Yosemite. The minimalistic and modern design of the new feature has received good reviews, and could help Apple land more customers. Micron might benefit from the MacBook refresh as it is working on the next generation of DRAM. The LPDDR4 is in the qualification phase at Tier 1 manufacturers in both server and computing, and is expected to start shipping this quarter.
Micron expects DDR4 shipments to account for 10% of its overall DRAM output in the second half of the year, signifying solid growth.
SSDs to propel the NAND business
Solid-state drives are based on NAND flash memory, and given the pace at which they are growing, Micron should see robust demand. By 2017, SSD shipments in PCs are expected to rise to 227 million, representing terrific growth of 600% from 2012. In fact, they are expected to account for 36% of the PC storage market in 2017.
Now, Micron's SSD business is growing at a solid pace, with a 50% sequential jump seen in client and enterprise SSDs in the previous quarter. Going forward, the company is looking to sustain this momentum on the back of its product development moves. For example, it recently launched its first 16-nanometer client SSD drive, which has seen strong demand from customers. In addition, its other SSD products, such as the M510 and M550 client drives, are also gaining traction in the market.
The takeaway
Micron's end-market prospects are strong, and the company has executed well to make the most of them. The mobile DRAM and SSD markets are expected to grow at tremendous rates going forward, which makes Micron look like a bargain at just 12.7 times last year's earnings. Although the stock has run up close to 50% this year, it hasn't run out of breath, yet, which is why investors should continue holding it in their portfolios.
