Micron Technology, Inc.(NASDAQ: MU) has reported revenues of $3.97 billion for the first quarter of 2017 ended on December 1, 2016. Revenues were higher by 23% over Q4FY16, 19% higher on YoY basis.  Net incomes attributable to Micron shareholders were at $180 million or $0.16 per diluted share compared to net loss of $170 million for the Q4FY16. The rise in revenues was supported by 18% and 26% rise in DRAM and trade NAND sales volume respectively and 5% rise in DRAM average selling price. The overall consolidated gross margin was at 25%. Cash and marketable investments were at $4.32 billion.

In the era of falling prices of memory chips, Micron’s competitors- Samsung and SK Hynix- have cut back on DRAM investments, switching focus to NAND. But now the scene is reversed and memory chips prices are rising. Although Samsung and SK Hynix have reversed their moves and ramp up DRAM production, the supply impact would take time, which is beneficial to Micron in raising its revenue and earnings.

Meanwhile, high barriers to entry in memory chip production reduce the threat of new entrants taking market share and profits away from Micron. The entry to memory chip business requires both large scale and strong technical capabilities.  The cost of building factory has increased exponentially in recent years. Micron being already a leading player has economies of scale and technology set up, which will keep him at an advantageous position for near future.

Micron recently brought out the remaining 67% interest for $4 billion of Inotera Memories of Taiwan.  The acquisition would bring significant financial and strategic benefits for the company. The management expects immediate accretion to DRAM gross margins, earning per share and free cash flow along with enhanced operational efficiency. Micron is also expected to see cost savings as Inotera earned $600 million from sales to Micron in fiscal 2015. Low cost would also aid Micron improving its competitive position. Further, the acquisition has also improved its leverage ratio, which would help improve Micron’s financial position and also getting better credit rating.

An analyst at UBS feels that the upside potential for the stock is due to better than expected DRAM pricing during the quarter, as the average selling price of the product continues to appreciate. Furthermore, the acquisition of Inotera will positively impact the gross margins of the company by about 200-300 basis points which in turn would enhance EPS by 6%-8%. The impact on the free cash flow would be $250+$500 million. Accordingly, UBS has reaffirmed its Buy rating by raising the price target from $21.5 to $24. Cowen and Company have also raised the price target from $22 to $23 with Outperformer rating.