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How High Can Micron Fly?

Speaking of which, I also don't believe that management has received the credit deserved for navigating the weak ASP environment the way that it has. This quarter was no different. Cost-per-bit for both DRAM and NAND were down sequentially by 5% and 1%, respectively. This contributed to better gross margin, which advanced by more than 13% year over year and by more than 6% sequentially.

Even more impressive, though, is that this level of fiscal awareness by management has helped the company reverse a year-ago loss to $43 million in profits. Remarkably, even with added pressures from SanDisk and Samsung, I don't expect that this profit trend will end soon.

In my recent article, these questions (among others) were my biggest sources of concern. Regarding Micron's competitive position, I said:

"It will be also interesting to hear what management says about the progress of memory business and previous diversification plans. With competition gaining ground, while ASPs are falling, I've argued that Micron should seek stronger growth opportunities in other end-markets such as servers and mobile.

"In that regard, new developments regarding the completed acquisition for bankrupt chipmaker, Elpida, should give investors a clearer sense of how management plans to move the combined companies forward, especially since Elpida was expected to give Micron some leverage with Apple (AAPL)."

Micron's management has answered these calls. Not only has the company shown a strategic shift to higher growth markets like network enterprise, server and mobile, but management has indicated that the acquisition of Elipida will likely close within the next quarter.

As noted above, given the fact that Apple uses roughly 80% of Elipida's mDRAM capacity, Micron is looking more and more appealing each quarter, especially with the strong market demand for mDRAM.

What's more, with improved cash flow and margin expansion, this stock has plenty more room to fly. I'm not suggesting that there are no longer risks here. But the potential rewards far outweigh any downside potential.

Micron's still a buy and I'm sticking with my $15 price target for the second half of the year.

At the time of publication, the author was long AAPL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.
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