Micron, SanDisk and Dr. Memory

NEW YORK ( TheStreet) -- Most of a lifetime ago, in 1971, the Firesign Theater did a phonoplay built around a futuristic, computer-driven society run by a machine called "Dr. Memory."

The play featured a DEC PDP-10 computer, running an artificial intelligence program called Eliza, written in the programming language Lisp. The programmer's struggle then was to get as much done in as little code as possible, to conserve precious memory.

Since then, Moore's Law has made memory anything but precious. Dynamic random access memory (DRAM) chips, once confined only to a computer's internal workings because of their fast access speed, are becoming the primary means of storing data, replacing slower, and more mechanical, hard drives.

Which means these should be boom times for America's real Dr. Memory, Micron ( MU).

To an extent, they are. At $13.50 each, shares are near a 10-year high. Micron has completed the purchase of a Japanese rival, Elpida, which Micron's local paper, the Idaho Statesman, calls a "screamin' deal."

The agreement makes Micron a strong No. 2 in memory chips, behind only Samsung, at a time when Moore's Law has demand poised to take off.

It's taking off thanks in part to memory companies like SanDisk ( SNDK), which makes products such as a 64 Gbyte Wireless Media Drive that creates its own network, connects to your PC via a USB port, and can stream up to five different videos and connect eight devices for eight hours, on a single electrical charge.

The SanDisk device is just one example of how memory chips are replacing spinning aluminum hard drives, despite their immense capacities. (My son's PC now has more than 1 terabyte -- 1,000 gigabytes -- of storage, and he says it's obsolete.)

Another example of how the market for chip memory is expanding is Intel's ( INTC) S3500 Solid State drive, built for cloud computing centers, with capacities of up to 800 Gbytes for less than $1,000.

This may be why analysts at both RBC and Sterne Agee have lately been pounding the table for both of these stocks, even though Micron is up 46% over the last three months and SanDisk is up by nearly one-third so far this year.

Micron's most recent quarter, ending in May, showed sales of $2.3 billion and a profit of just 4 cents a share, which was still a positive surprise.

SanDisk's latest earnings release, for the quarter ending in June shows sales rising 43% and profits of $1.06 a share.

But here's the problem. While the price of wafer-based memory keeps falling, and markets keep growing, competition also keeps margins wafer-thin.

Bulls are betting that Micron's acquisition of Elpida will give it a little pricing power, and that SanDisk can innovate against a host of competitors. That may turn out to be the case, but the promises of memory profits have been chimeras before, and a happy future is always, by its nature, a speculation.

At the time of publication, the author had no investments in companies mentioned here.

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

Dana Blankenhorn has been a business journalist since 1978, and a tech reporter since 1982. His specialty has been getting to the future ahead of the crowd, then leaving before success arrived. That meant covering the Internet in 1985, e-commerce in 1994, the Internet of Things in 2005, open source in 2005 and, since 2010, renewable energy. He has written for every medium from newspapers and magazines to Web sites, from books to blogs. He still seeks tomorrow from his Craftsman home in Atlanta.

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