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Micron's Best Days Are Ahead of It, but Wait to Buy the Stock

NEW YORK (TheStreet) -- Chipmaker Micron Technology (MU - Get Report) crushed the consensus estimates when it reported its third-quarter results after the bell on Monday. For shareholders, now may be an ideal time to ring the register and take some profits.

I'll quickly cover the results and then explain why the potential reward is overshadowed with peril, but you can mitigate the risk if you choose to continue holding the stock.

Micron Technology reported adjusted earnings of 79 cents a share, easily exceeding the average analyst estimate of 72 cents. Revenue was $3.98 billion, better than the average estimate of $3.89 billion.

Sequentially, earnings fell from 85 cents per share, while revenue dropped from $4.1 billion. On a diluted earnings per share basis, the company earned 68 cents, 7 cents greater than last quarter.

The purchase of Elpida renders year-over-year comparisons challenging at best. From a forward earnings-per-share perspective, Micron Technology is more expensive than a year ago, but it is appropriately priced considering the company's DRAM earnings concentration, and vendor reliance.

The Elpida purchase also makes Apple (AAPL) the largest customer. About 11% of total net sales is from the iPhone maker. Apple is widely expected to release the iPhone 6 this fall in time for the holiday shopping season. However, Amazon's (AMZN) new Fire phone is expected to hit AT&T's T shelves in late July.

I don't have a huge amount of confidence in Amazon's ability to capture market share, but obviously Amazon's CEO Jeff Bezos doesn't share my opinion. Considering Bezo's market prowess, the Amazon Fire phone can't be dismissed out of hand. Samsung, a Micron Technology competitor, makes the memory chips for Amazon's Kindle Fire, and is a likely vendor for the Fire phone.

Samsung's Galaxy S6 release is expected at the same time as Apple's iPhone 6 release. Samsung has proven it can influence iPhone sales and depending on its reception, may cause softness in iPhone sales. Microsoft (MSFT) with Nokia (NOK) are factors because of their recent market share growth, but unlikely to move the needle far within the next year.

As is the case with most computer components, memory chip size and speeds continuously fall in price. DRAM memory since 2008 has trended lower by about 25% per year. In order for Micron to grow revenue and earnings, it must stay ahead in the race to the bottom.

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