Micron Technology (MU) - UVACollab · PDF file• Hard-drive Solid State drive • SSD’s use NAND or DRAM • NAND+NOR play key role in smartphone and tablet chips 8. M c I n t i

M c I n t i r e I n v e s t m e n t I n s t i t u t e1

MCINTIRE INVESTMENT INSTITUTEAT THE UNIVERSITY OF VIRGINIA

Jack Armstrong, Brandon Bailey, and Andrew Morton| 11.27.12

Micron Technology(MU)

M c I n t i r e I n v e s t m e n t I n s t i t u t e

AGENDA

• Company Overview• Financials• Thesis Points• Misperceptions• Risks• Looking Forward• Recommendation

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M c I n t i r e I n v e s t m e n t I n s t i t u t e

COMPANY OVERVIEW

• Global manufacturer of semiconductor devices (Computer RAM, Flash memory, Solid State Drives)

• Founded in 1978

• Based in Boise Idaho, with other facilities in Manassas, VA, Israel, Italy, Singapore, China, Puerto Rico, and Malaysia.

• 4 segments: DRAM, NAND, NOR, and Embedded Solutions (i.e. for automobiles)

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M c I n t i r e I n v e s t m e n t I n s t i t u t e

FINANCIALS

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• Share Price: $5.70• 52 Week : $5.16-9.16• Market Cap: 5.80B

• EPS: -1.04• P/E (ttm): N/A• Beta: 1.75

M c I n t i r e I n v e s t m e n t I n s t i t u t e

FINANCIALS

• Memory Market: Too many suppliers caused market prices to plummet

• Micron suffered net income losses of $175 million and $243 million over the last two quarters respectively

• Share price has essentially “bottomed out”

• $2.5 billion in Cash Reserves

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M c I n t i r e I n v e s t m e n t I n s t i t u t e

PRODUCTS

DRAM NAND NORDynamic Random Access Memory

Fastest

Large capacity

Data is erased if the power is cut (volatile)

i.e. computer memory, video game memory

Flash memory – NAND gate

Slow

Large capacity

Data remains if power is cut (non-volatile)

i.e. jump-drives, SSD’s, Secure Digital (SD) cards

Flash memory – NOR gate

Fast

Small capacity (expensive)

Data remains if power is cut (non-volatile)

i.e. cell phone memory

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M c I n t i r e I n v e s t m e n t I n s t i t u t e

THESIS POINTS

• Secular market shift towards faster, more portable consumer electronics

• Significant innovation –the future of computer memory?

• Pending Elpida acquisition

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M c I n t i r e I n v e s t m e n t I n s t i t u t e

MARKET SHIFTS

• Hard-drive Solid State drive

• SSD’s use NAND or DRAM

• NAND+NOR play key role in smartphone and tablet chips

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M c I n t i r e I n v e s t m e n t I n s t i t u t e

ULTRABOOKS AND PC MARKET SHIFTS

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M c I n t i r e I n v e s t m e n t I n s t i t u t e

SMARTPHONE MKT SHARE 2010

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M c I n t i r e I n v e s t m e n t I n s t i t u t e

SMARTPHONE MKT SHARE 2011

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M c I n t i r e I n v e s t m e n t I n s t i t u t e

INNOVATION

• Nov. 14, 2012 – Micron Technology announces NVDIMM technology (non-volatile dual inline memory module)

• Integrates best aspects of DRAM and NAND: Speed + non-volatility

• Competitive advantage : rival SanDisk lacks DRAM production

• Expected samples Q1 2013

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M c I n t i r e I n v e s t m e n t I n s t i t u t e

ELPIDA ACQUISITION

• Elpida bankrupt in Feb 2012 due to plummeting DRAM market price – stagnant PC demand and flooding in Thailand

• In 2011, benchmark DRAM price dropped by 85%

• Micron Technology won Japanese court’s approval to buy Elpida for $ 2.5 billion

• Immediately after this announcement, market price of memory went up

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M c I n t i r e I n v e s t m e n t I n s t i t u t e

ELPIDA ACQUISITION

• Elpida supplies 35% of Apple’s memory, including DRAM on iPhone 5 – competes with Samsung

• Buying Elpida would give MU the second largest memory market share, behind Samsung

• Elpida also gives MU better economies of scale + more of its own facilities

• Elpida Acquisition would create an “oligopoly”

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M c I n t i r e I n v e s t m e n t I n s t i t u t e

MISPERCEPTIONS

• Market price for memory will continue to fall

• Profits will remain negative

• Elpida went bankrupt, therefore it is a bad acquisition

• Hesitation over Elpida deal

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M c I n t i r e I n v e s t m e n t I n s t i t u t e

RISKS

• Elpida deal somehow fails or is over-complicated by US court decision

• NVDIMM does not take off or is too expensive

• Cost of producing memory increases/remains stagnant

• Apple chooses not to contract with Micron

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M c I n t i r e I n v e s t m e n t I n s t i t u t e

LOOKING FORWARD

• Elpida deal should go through as scheduled in Q1 or Q2 of 2013

• Acquisition success would give MU a 24% market share

• NVDIMM samples released in Q1 2013

• Market shifts toward SSDs and flash memory

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M c I n t i r e I n v e s t m e n t I n s t i t u t e

RECOMMENDATION

• Initiate a long position at 1-2%

• We do not currently own any shares in MU

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