After delivering on March 23 better than expected earnings per share results for its second fiscal 2017 quarter, and guiding for the current quarter results considerably higher than analysts’ estimates, Micron Technology, Inc.(NASDAQ:MU) saw its shares soaring to two-years high at $29.87. What’s more, this price increase was done with a gap of $1.96 or 7.4%. Since then, MU’s stock price fell 6.5% closing the gap, as it frequently occurs with large gaps. However, since Micron’s strong growth prospects and fundamentals have not changed, the recent decline in its stock price creates, in my opinion, an excellent opportunity to start or increase position in Micron’s stock.
Chart: TradeStation Group, Inc.
Besides the favorable market conditions for memory chips due to tight supply and high demand resulting in better prices for its products, Micron is benefiting from reductions in manufacturing cost contributed by significant progress on its key technology and product initiatives. In fact, the company achieved in its latest quarter a decrease in cost per bit of 6% in DRAM, and 15% in NAND flash memory compared to its previous quarter. What’s more, the average sales price of DRAM increased 21% in the second fiscal 2017 quarter compared to the first fiscal quarter, while the average sales price of flash decrease 6%. However, sales bit growth in the second quarter increased by 18% for flash memory and only 1% for DRAM. All in all, 64% of the company’s revenues in the second fiscal quarter were attributed to DRAM and 30% to NAND flash memory.
However, Micron is not resting on its laurels, just the opposite; it is continuing looking for new products and new applications. As such, on April 24, the company announced at the Hannover Messe 2017 that it is collaborating with Microsoft Corporation (NASDAQ:MSFT) to provide trusted computing models for the internet of things (IoT) deployments in various environments like automotive, industrial and consumer. Since the major challenge to the growth of IoT is cyber-security, the new solution by the two companies is to utilize a special hardware called “root of trust” which is integrated into Micron’s flash memory in the internet of things device. The new hardware along with the Microsoft’s Azure IoT cloud computing platform establish, according to the two companies, a strong trusted link between the cloud and the IoT device. Coupled with the new hardware, Micron and Microsoft also will offer software development kits which will make it easier to provide secure internet of things cloud connectivity and management for new devices and platforms, in addition to the ability to improve legacy systems.
Also at the Hannover Messe 2017, Micron informed about its new IoT security technology which is called Authenta. According to the company, the new security technology enables robust cryptographic device identity and device health management in flash memory. The combination of Micron’s Authenta technology and Microsoft Azure IoT cloud will ensure that only trusted devices will be able to access to the IoT cloud.
As I see it, Micron’s collaboration with Microsoft to offer new solutions for the deployment internet of things will benefit the company since investment in IoT is expected to grow considerably in the next few years. Hence, investors could expect that the increasing demand for Micron’s products would result in higher earnings and could drive Micron’s shares higher.
In my view, the recent decline in its stock price creates an excellent opportunity to buy Micron’s stock at a compelling price, that is because the company’s high growth prospects and fundamentals have not changed. Also top analysts, according to TipRanks, suggest on average an upside of 38% to the current stock price, which appears reasonable, in my opinion.
Disclosure: I am long MU stock.