Micron Technology (MU) Rises on Analyst Upgrade and Report of DRAM Consolidation

Shares of Micron Technology Inc. (MU: Charts, News) rose on Tuesday after analysts at Barclays Capital (BCS: Charts, News) upgraded their rating from "equal weight" to "overweight".

Also out was news that Elpida Memory, one of Micron's chief competitors was in talks with Toshiba Corp on a possible merger. Shares of Micron closed at 6.755 per share, up +0.465 or 7.39% in active trading.

Barclays' analysts also revised their projected price for Micron stock from $8, to $9 per share. In addition to upgrading their outlook on Micron, Barclays also reduced their ratings on Intel (INTC: Charts, News), Applied Materials (AMAT: Charts, News), and Freescale Semiconductor. Barclays expects improved overall performance for the semiconductor business in 2012, with revenues expected to rise 6% to 8% by 2013.

Micron's share price was also supported by a report in DigiTimes that the Japanese government was brokering a merger between troubled Elpida Memory and Toshiba. Elpida Memory, the world's third largest producer of dynamic random access memory chips or DRAMs has had problems paying back debt and has been trying to raise additional capital.

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Micron announced results for operations for their first quarter of fiscal 2012 on December 21st, 2011. The company reported a loss of $187 M, or $0.19 per diluted share on net sales of $2.1B. This compares to last year's results of a net loss of $135 M, or $0.14 per share on sales of 2.1B for the fourth quarter of fiscal 2011, and net income of $155 M, or $0.15 per diluted share, on net sales of $2.3B for the first quarter of 2011.

Micron Technology, Inc. is the only major maker of DRAM, Nandi or NAND Flash and NOR Flash memory chips in the United States and has been severely affected by Asian competitors such as Elpida memory. Elpida has been having financial problems due to shrinking margins in a market oversupplied with DRAM chips. According to some analysts, DRAM contract prices have fallen 58% in the last year with spot prices decreasing as much as 70%.

Despite the oversupply of DRAM chips on the market, new innovations at Micron will undoubtedly stimulate the company's future growth. Innovations such as the world's first 128-gigabit Marvell-ethic NAND device and the mass production of a 64-gigabit product using a similar technology, as well as a "Hybrid Memory Cube" they are working on with Intel (INTC: Charts, News).

Other analysts are also closely watching Micron, for example, in a research note to investors on December 22nd, Deutsche Bank (DB: Charts, News) reiterated a "hold" rating for Micron Technology shares, while Goldman Sachs reiterated a "neutral" rating on the stock in a research note on the same day. In another research note issued last Thursday, UBS AG (UBS: Charts, News) had originally cut its earnings per share estimate on Micron and are now recommending the stock as a "buy" with a target price of $12 per share.

With increasing sales in the PC market, in addition to the growing market for mobile applications for its products and the consolidation of the industry, Micron Technology, Inc. could soon return to profitability.

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Published on Jan 4, 2012
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

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