(MU) Micron Technology to Offer Chips to Alcatel

Memory chip manufacturer Micron Technology Inc. (MU) will offer its advanced Reduced Latency DRAM (RLDRAM) 3 memory chips to networking solutions provider Alcatel-Lucent (ALU). Financial details of the deal were not disclosed.

Alcatel-Lucent is a leading provider of mobile, fixed, IP and Optics technology solutions. It serves service providers, enterprises, strategic industries and governments across the world. Micron’s memory chips will be used by Alcatel-Lucent to develop next-generation network offerings. Alcatel-Lucent will use the RLDRAM 3 memory in pioneering the 400 gigabyte capacity-oriented chipset.

Micron’s yet-to-arrive RLDRAM 3 chip will allow faster and more efficient data transfer over networks. With this chip, network performance will be doubled, while latency will come down to less than 10 nanoseconds. Latency is the lag time between a request for data and its delivery. The production of the chip is slated to begin by the second half of this year. Currently, Micron is offering its customers an advanced version of RLDRAM 2.

Since use of electronic data has increased manifold over the past few years, efficient networks are the need of the day. It is expected that Micron’s chip will help Alcatel-Lucent do just that. Therefore, customer retention and expansion may be expected to increase, strengthening the decade-long business relationship between Alcatel-Lucent and Micron.

Micron’s third quarter results were disappointing as both top and bottom lines badly missed the Zacks Consensus Estimates. The quarter even saw average selling price (ASP) declines.

However, some analysts believe that ongoing cost reduction and financial discipline could mitigate the adverse effect of ASP declines to some extent, going forward. Moreover, Micron’s shift in focus from traditional PC DRAM to specialty DRAM could also boost its fundamentals. Analysts are also positive about favorable DRAM pricing in the near term due to shortages related to Japan.

Concerns include competition from SanDisk Corp. (SNDK), the legal tussle with Rambus Inc. (RMBS) and weakening PC sales.

Micron Technology has a Zacks #3 Rank, implying a short-term Hold recommendation.

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