How High Can Micron Fly?

NEW YORK ( TheStreet) -- The last time I talked about Micron ( MU), I argued its recent stock performance versus operational performance didn't jibe. I didn't believe Micron's management was getting the credit that it deserves.

The management team had remained a mystery despite the fact that the company's stock had doubled over the past six months -- posting gains of 150% since bottoming out at $5.16 last October. They had overcome the gloom seen when Micron's flash memory business was under pressure from the likes of SanDisk ( SNDK) and Applied Materials ( AMAT).

Plus, it didn't help that the personal computer market, which Micron relied upon to further its DRAM (dynamic random access memory) business, was on the decline. This is while the overall memory chip industry, which has become commoditized, began posting weak margins due to low average selling prices, or ASPs. Amid all of this turmoil, Micron managed to keep things together.

With such a strong recent track record, I recommended the stock ahead of the company's third-quarter earnings report. Investors who listened to me were risking some pretty significant gains by holding. But it's proven to be a excellent bet as Micron didn't disappoint. Revenue climbed 7% year over year and 12% sequentially.

The company's NAND business, which is a non-volatile storage technology found in devices like MP3 players, grew 7% sequentially due to an 8% improvement in ASPs. This is encouraging, especially given that 60% of the company's NAND shipments support the growing demand for global SSDs, or solid state drives, the storage technology that is used in mobile devices.

Investors have to be encouraged by this growing trend. I've always believed that Micron's long-term value was being discounted on the basis of its NAND position. This, too, is now proven true, given the improved margins that the company is now enjoying due to the continued rise of smartphone and tablet shipments.

So far, in terms of Micron's NAND technology, there is no evidence to suggest there will be a decline in coming quarters. Micron's management seems to agree. The company has begun to migrate a considerable portion of its DRAM capacity in Singapore to increase its NAND output. In other words, Micron's profits should improve in the coming quarters due to higher NAND production and better margins.

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