Anybody who is following the DRAM (Dynamic Random Access Memory) industry must be aware of the recent crash in DRAM prices, which wreaked havoc on most DRAM manufacturers. The crash was a result of falling PC sales, while ultrabooks failed to grow at the expected rate.
To counter the falling prices, DRAM manufacturers, including Toshiba and Samsung, cut the production of their memory modules, which, coupled with recovering industry prospects, led to a 183% jump in DRAM prices. Since it’s an industry wide growth catalyst, almost all DRAM manufacturers stand to benefit here. But there are a few reasons why Micron Technology, Inc. (NASDAQ:MU) seems well poised to outperform its mentioned peers.
To begin with, Micron Technology, Inc. (NASDAQ:MU) is one of the leading semiconductor device manufacturers around the world, which mainly produces NAND Flash, NOR Flash, and DRAM memory modules. The company reported annual sales of over $7.8 billion last year. But, the numbers are going to change soon!
According to its latest press releases, Micron Technology, Inc. (NASDAQ:MU) is in the final stages of acquiring Japanese chipmaker Elpida. The deal is being valued at around 200 billion Yen, which equates to nearly $2.01 billion. The good thing is, $1 USD currently equates to ¥99.5, up from $1 USD = ¥78.5 in September last year, which has effectively lowered the cost of Elpida’s acquisition by over 26%.
Elpida Memory is a leading DRAM memory manufacturer, and the acquisition is expected to boost the FY13 EPS of Micron Technology, Inc. (NASDAQ:MU) to a loss of $0.36, as compared to a loss of $0.54 in FY12. On the sales front, Elpida Memory is expected to add over $200 million in annual revenue, which should take Micron’s annual revenue to over $8 billion. Furthermore, the acquisition would boost Micron’s overall DRAM production by 50%.
Since DRAM module prices are rising again, while the Japanese Yen is depreciating, the acquisition should be massive value addition for Micron Technology.
Moving ahead in the race
On the competitive front, the production boost would put Micron Technology, Inc. (NASDAQ:MU) as the world’s second largest DRAM manufacturer. Samsung is currently enjoying a 39% market share, while Toshiba and Micron Technology operate with around 27% and 14% market share.
But, I believe that Samsung’s massive market share could be jeopardized by the tensions in North Korea. Its head office and one of its main manufacturing facilities are located close the Korean border (30 miles away), and authorities of both the North and Southern nationalities are reportedly shutting down businesses in the area to avoid needless civilian casualties.