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Chipmaker Micron Tech's shares rising on raised outlook, expectations for 2021

Micron Technology Inc. is projecting a strong start to is fiscal 2021 due to a rebound in the market for memory chips, boosting its outlook and share price after a somewhat volatile 2020.

The company's stock is up almost 30% year-to-date as of Dec. 2, during which Micron set a new intraday trading high of $69.39 before pulling back slightly to close at $69.11. That's more than twice the stock's 52-week low of $31.13 set in March.

Analysts say strong demand for the company's NAND and DRAM memory chips used in laptops and smartphones is keeping chip prices stable, and Micron's plan for its next generation of chips will help keep manufacturing costs down. The company on Dec. 1 revised its guidance upward, saying that it now expects revenue for its first quarter of fiscal 2021, which ends Dec. 3, of between $5.7 billion and $5.75 billion, up about 11% year over year. That compares to previous guidance calling for revenue in the $5 billion to $5.4 billion range. The company reported revenue of $5.14 billion in the first fiscal quarter of 2020.

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Micron CEO Sanjay Mehrotra said during a Dec. 1 fireside chat with analysts that notoriously volatile prices for NAND and DRAM chips remained steady due to high demand driven by rising sales of 5G smartphones and continuing strong demand for laptops that have been driven by the pandemic-inspired remote-work/remote-learning markets.

NAND chips provide the flash-memory storage in thumb drives and solid-state drives that are replacing hard disk drives in many computers because the newer drives improve performance and use less battery power. DRAM memory chips are faster than NAND, but lose all the data they store when they lose power. DRAM chips are most often used to provide the random-access memory (RAM) used in PCs and other devices.

Analysts are optimistic about a product road map Micron laid out in a Nov. 30 briefing, especially the 1-alpha version of Micron's core DRAM chip, which the company said provides 40% more memory for its size than Micron's current 1Z design with a 15% improvement in power efficiency.

The 1-Alpha design will likely begin ramping up toward volume production during the first half of 2021, which will reduce manufacturing costs at the high end of Micron's product range, but not enough to offset the increase in volume Micron expects from low-end memory chips aimed at the mobile market, according to a Dec. 1 note from Raymond James analyst Chris Caso.

NAND and DRAM prices become volatile when memory providers overspend on manufacturing capacity, but both markets have been relatively balanced during the past year or two, according to Brian Matas, vice president at semiconductor-sales market research firm IC Insights.

Micron's advanced chip designs and ability to develop cost-effective manufacturing processes have kept it near the front of a highly competitive pack, Matas said. Its designs have allowed it to focus on higher-margin products including premium NAND chips and its ability to build sales and increase performance while reducing the cost of the high-performance 3D Xpoint special-purpose flash-memory chip Micron designed with Intel Corp., he said.

"Micron was banned from selling DRAM to Huawei Technologies Co. Ltd. due to trade restrictions in September, which didn't help their DRAM sales. But in their earnings calls they sound pretty confident about making that up," Matas said.

Mehrotra said Micron expects to make up the volume of sales it lost from Huawei by the end of the second quarter of fiscal 2021, but the company will be conservative in capital spending especially in expanding the capacity of NAND production, out of concern for oversupply-driven price penalties.

Mehrotra said during an analyst conference Dec. 1 that it expects DRAM sales and pricing to stabilize due to strong demand for 5G smartphones and data-center equipment, in addition to the positive economic benefit of the gradual global recovery from the pandemic during 2021.

"I think during calendar year '21, as global economies grow past the pandemic, the need for more memory and storage will continue to broaden as well," Mehrotra said. "And I believe that even enterprise, which today is weak, once we get post-pandemic, I believe that during calendar year '21, enterprise sector as well will start improving."