Semiconductor device manufacturer Micron Technology Inc. (MU) recently witnessed a 6.0% jump in its share price following the announcement of the merger between one of its competitors, Elpida Memory and Toshiba Corp. The merger marks a consolidation in an industry hurt by cut-throat competition.
The Japanese government is supervising the merger and has initiated words with the Elpida and the Japanese electronic major Toshiba Corporation. Some industry experts believe that the Elpida merger will lead to an improvement in DRAM pricing.
Micron is also facing stiff competition from Asian rivals, which has been affecting its margins over the last several quarters. Analysts are also expecting consolidation in the DRAM space, which will eventually lead to stabilization in prices during the second quarter.
A couple of weeks back, a Japanese business daily (Nikkei) published the news of a possible merger between local chip maker Elpida and its Taiwanese rival Nanya Tech. However, Nanya’s chairman completely denied the statement and claimed that they were entangled in a legal patent issue.
We believe that consolidations could save the DRAM market from its present predicament. Market sources state that manufacturers have already restricted their production capacity with the intention of rebalancing their inventories. The initiatives are showing good results on DRAM pricing. Based on this news, we look forward to better DRAM fundamentals in 2012.
Some other experts also believe that a secular shift from commodity DRAM to specialty DRAM and share gains in the NAND market could help Micron drive margins. Micron’s NAND market share is expected to increase in 2012 with higher output and increased ownership in IMFS (the joint venture between Micron and Intel Corp. (INTC)).
Micron’s first quarter results were disappointing as the bottom line considerably lagged the Zacks Consensus Estimate. The quarter’s revenue too came in below the year-ago level. The quarter even saw lower ASPs.
We believe that it would not be easy to capture share from SanDisk Corp. (SNDK), a key player in the NAND space. However, Micron recently received a clean chit in the antitrust suit against Rambus Inc. (RMBS). Hence, there should be a reduction in legal expenses that should translate to stronger results at Micron.
Micron Technology has a Zacks #3 Rank, implying a short-term Hold rating.
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