Micron Stock Surges as Investors Bet on Memory-Chip Consolidation, Rebound

By Ian King - Dec 23, 2011 4:33 AM GMT+0700

Micron Technology Inc. (MU), the largest U.S. maker of computer-memory chips, jumped 16 percent on investor optimism that the market is rebounding from a slump in demand and industry consolidation will limit supply.

Micron shares closed at $6.41 in New York, after earlier touching $6.55. The stock has dropped 20 percent this year.

Elpida Memory Inc. a Tokyo-based memory-chipmaker, said earlier today it’s discussing refinancing with banks and seeking an investment partner. That followed comments yesterday from Micron Chief Executive Officer Steve Appleton, who said that industry losses would probably mean weaker competitors will band together or exit the business. Having fewer manufacturers would limit the increases in supply that erode prices.

“It’s a momentum stock, and they gave enough information on the call to show that the DRAM industry has troughed and things get better from here,” said Kevin Cassidy, an analyst at Stifel Nicolaus & Co. “The downside risk isn’t that high.”

Micron yesterday reported its second consecutive quarterly loss, citing the falling price of dynamic random access memory, or DRAM, which provides the main memory in personal computers. Lower demand was partially caused by floods in Thailand that have left PC makers short of hard-disk drives, leading them to trim purchases of other components. Micron said it has seen a 10 percent to 15 percent drop in DRAM orders.

Customers will be able to ship 20 million more machines in the calendar first quarter compared with the fourth after an increase in hard-disk supply, the company estimated.

Net Loss

Micron’s net loss was $187 million, or 19 cents a share, compared with net income of $155 million, or 15 cents, a year earlier, the Boise, Idaho-based company said in a statement. Revenue in the first quarter ended Dec. 1 fell 7.2 percent to $2.09 billion. Analysts on average estimated a loss of 8 cents on sales of $2.12 billion, according to data compiled by Bloomberg.

Micron, which has previously acquired the operations of other companies exiting the memory business, will consider further deals, Appleton said on a conference call with analysts.

“If there’s something there that makes sense, then we’re going to take a look,” he said. “I think we really have been the only catalyst and consolidator in the main DRAM field that’s been successful.”

He declined to comment on whether Micron is currently considering a transaction.

Fewer Competitors

The company is the only remaining U.S.-based maker of DRAM after Asian manufacturers forced out the pioneers of the industry, including Intel Corp. and Texas Instruments Inc. Producers’ inability to match supply to demand in DRAM has hurt earnings as prices for the chips, which are traded on commodity exchanges in Asia, often fell below the cost of production.

Micron has reported an annual profit in only four of the past 10 calendar years. The company goes head-to-head with South Korea’s Samsung Electronics Co. (005930), the world’s second-largest chipmaker behind Intel.

Micron has lessened its dependence on DRAM by following Samsung and Toshiba Corp. into the market for Nand flash memory, chips that provide the storage in portable electronics such as Apple Inc.’s iPhone and iPad.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net.