A Very Favorable View on Micron-Elpida

Micron Technology Inc. (NASDAQ: MU) saw a bump up in its share price of less than 3% on its securing the Elpida merger out of bankruptcy in Japan.  What Micron is getting here is a front-door move into Apple Inc. (NASDAQ: AAPL) and it is now securing its spot with three DRAM suppliers running the global DRAM market.  Stern Agee’s chip analyst is Vijay Rakesh, and he is viewing this deal quite favorably for Micron.

The report noted, “Micron announced the Elpida deal after months of speculation surrounding the deal structure and payback. We believe the deal is very smart and a pragmatic structuring for MU, with only $750M upfront, and the remainder $1.75B in “interest-free” installments through 2019. Also a fungible limited Capex outlay for Elpida in 2013, we believe this should be very agreeable to investors.”

Rakesh now shows that the DRAM market is now down to only 3 real players controlling over 90% of the global DRAM market: Samsung(~38%), Micron-Elpida(~28%) and Hynix(~24%). This deal gives Micron access to Elpida’s Hiroshima fab and the 89% ownership in the Rexchip Fab. The combined entity will have a capacity of ~580K Wpm vs ~380K Wpm now

Rakesh concludes: “Near term DRAM trends continue to be Positive – but we might see the DRAM markets responding more positively over coming weeks as supply is further rationalized. Not changing any estimates here, but overall we believe a positive event as it removes a Significant Overhang from the stock.”

With shares at $6.55, the consensus price target is now $10.00 at Stern Agee.  That target is not exactly unreasonable even if it is more than 50% projected appreciation because the consensus price target from Thomson Reuters is $9.97 on Micron’s stock.

JON C. OGG