STEC Stec, Inc. (MM)

Reportedly, Micron (MU) will be trimming its workforce to remain cost effective and efficient. The company is expected to cut approximately 5% of its 30k strong workforce by fiscal 2014.

Moreover, the decision to lay off around 1500 employees through attrition, voluntary buyouts and layoffs is expected to bring down operating costs for the company in the long run. However, in the near term the company may have to incur one-time costs for the proposed reductions in the workforce.

The current spate of workforce reduction comes at the heels of Micron’s much-hyped and long-awaited acquisition of Elpida Memory Inc. However, the employees of the acquired company will not be affected by the current layoff strategy.

There is no doubt that the acquisition will help Micron to expand its operation across the globe, especially Japan. Moreover, the technical know-how that the company gains from Elpida will be of much use and will also help it to understand the Japanese market better.

Also, the fact that Elpida won a major DRAM (Dynamic Random Access Memory) supplying agreement from Apple Inc. (AAPL), will give Micron another reason to cheer. With this, Micron’s wafer manufacturing capacity will increase nearly 50%.

With the acquisition, the number of leading DRAM chip manufacturers will drop to three, namely, Samsung (the market leader), Micron and Hynix Semiconductor. Previously, Hynix was ahead of Elpida while Micron had the lowest market share.

Micron had swung to profit in the last reported quarter (third quarter of 2013) after reporting loss for the seven consecutive quarters. The company reported solid operating performance on the back of higher revenues and lower costs. We believe tight expense control, manufacturing efficiency and secular shift toward mobile DRAM will benefit Micron’s fundamentals in the coming quarters.

Though Micron’s prospects in the mobile DRAM market look promising, it will not be easy to outpace Samsung. Samsung has held the largest share of this market for years and there are indications that it will sustain the same rank for the coming years as well.

Stiff competition from SanDisk Corp. (SNDK) and STEC Inc. (STEC) are also concerns.

Currently, Micron Technology has a Zacks Rank #2 (Buy).

 
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