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Micron Signs Deal With Samsung

Posted on Monday, Oct 11th 2010

Micron (NYSE:MU), the largest U.S. DRAM maker, reached a 10-year patent cross-licensing deal with Samsung. Micron this week also reported lower-than-expected sales for the fourth quarter but swung to a profit for the fourth straight quarter.

Deal With Samsung
Under the deal Samsung, the world’s second-largest chip company, will pay Micron $200 million by October 12, with $40 million due by January 31, 2011, and $35 million by March 31, 2011. Micron did not elaborate further.

Hans Mosesmann, an analyst with Raymond James & Associates, has this to say about the deal on EETimes

“We believe this is a strong indication of Micron’s formidable patent portfolio, and strategically it likely cements a de facto duopoly in DRAMs and perhaps even NAND flash over time.”

Micron’s Financials
Micron reported its first annual profit after four years. In the past ten years, it has reported annual profit only four times, showing how unpredictable demand patterns can be in the memory industry. Micron makes dynamic random access memory, or DRAM, chips that provide the main memory in PCs. The company also makes NAND flash memory chips, used in digital cameras and portable devices.

For fiscal 2010, Micron reported annual profit of $1.9 billion or $1.85 per share versus a net loss of $1.9 billion or $2.35 per share for fiscal 2009. Revenue in fiscal 2010 nearly doubled to $8.5 billion from $4.8 billion in 2009. The company ended the fiscal year with cash and investments of $2.9 billion. For all of fiscal 2010, the company invested approximately $950 million in capital and paid down its debt by $640 million.

In its fourth quarter, Micron reported revenue of $2.5 billion, up 92% from $1.3 billion last year and 9% over the previous quarter. Net income was $342 million or $0.32 per share compared with a net loss of $100 million or $0.12 per share a year earlier. Analysts expected earnings of $0.38 per share on sales of $2.7 billion. Gross margin was 31.3%, down from 37.1% last quarter.

Numonyx Acquisition
Micron recently acquired Numonyx, which provides the NOR Flash in the iPhone 4. NOR flash is a low-margin business, but the iPhone design win is a plus for Micron. The GAAP Numonyx results for the fourth quarter included revenue of $555 million with gross margin of approximately 21%. In August, Numonyx’s interest in a joint venture was sold to Hynix, and Micron received a total of $423 million from the sale.

Softening Demand
Micron said demand softened a little toward the end of the fourth quarter in its notebook, desktop, commodity DRAM businesses. Some of the softening in the desktop and notebook space, CEO Steve Appleton said can be attributed to the success of the tablets and smartphones. DRAM sales declined 14% q-o-q in the quarter primarily because of a 12% decrease in unit sales volume and a slight decrease in average selling prices (ASPs). NAND sales declined 9% q-o-q due to a 12 percent decrease in unit sales volume and a slight decrease in ASPs.

The stock is currently trading around $7.5 with market cap of about $7.5 billion. It hit a 52-week high of $11.40 on April 14 and a 52-week low of $6.40 on August 27. The softening demand is a concern for Micron, but the Samsung deal is a factor in its favor.

Chart forMicron Technology Inc. (MU)

National Semiconductor’s Financials
Another major chipmaker, National Semiconductor (NYSE:NSM), with annual revenue of $1.42 billion, recently reported its first quarter results. National Semiconductor makes chips for cell phones and industrial/communications infrastructure equipment. Its first quarter revenue was $412 million, up 31% y-o-y and 3% q-o-q. Net income was $88.8 million or $0.36 per share, up from $29.8 million or $0.13 per share last year and $79.2 million or $0.33 per share last quarter. Gross margin increased to 70.9% from 68.8% last quarter and 61.1% last year. The company ended the quarter with a cash balance of about $779 million.

Sales to the mobile phone market grew by 7% q-o-q and represented about 25% of overall sales in the quarter. Sales to the communications and networking market were down 4% q-o-q and represented about 12% of total sales. Sales to the industrial market grew 6% q-o-q driven by SIMPLE SWITCHERs, which are used in industrial power supplies. Industrial market sales represented more than 45% of total sales in the quarter and the SIMPLE SWICHER business about 10% to 11% of total sales in the quarter.

New automotive infotainment and driver-assist applications are also driving revenue growth for the company’s in-car communications products. Sales in this segment are up over 30% q-o-q and 90% y-o-y. The number of chips in cars is growing up each year. According to IMS Research, the market for semiconductors in under-the-hood and body electronics will grow from $10.3 billion in 2010 to $16.8 billion in 2017.

For the second quarter, National Semiconductor revenues to be between $390 million to $415 million, or flat to a decrease of 5%, compared to the first quarter of fiscal 2011. Analysts expected revenue of $421 million for the second quarter. The stock is currently trading around $13 with market cap of about $3 billion. It hit a 52-week low of $11.84 on September 10.

Chart forNational Semiconductor Corporation (NSM)

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