Zacks_Analysts' Blog : Micron to Acquire Virtensys - Analyst Blog

Semiconductor-based memory chip manufacturer Micron Technology Inc. (MU) recently announced its intention of acquiring U.K.-based tech start-up Virtensys Ltd., for an undisclosed sum. The transaction is expected to be wrapped up by the end of this month. With this acquisition, Micron would be able to seize a significant share of the SSD (Solid State Drive) market, nudging aside the likes of OCZ Technology Group Inc. (OCZ) and Fusion-io.

Virtensys Ltd. provides I/O virtualization technologies for servers and storage platforms. The company’s VIO-4000 Series PCIe (Peripheral Component Interconnect Express) sharing device virtualizes network and storage connectivity to a number of servers, thereby enhancing data center management as well as the deployment of their virtualized I/O resources.

The PCIe SSD is an important area in the bubbling storage market. Micron’s enterprise PCIe SSD has attained massive popularity owing to its speed, reliability and power efficiency. Moreover, the acquisition of Virtensys will further supplement the company’s product portfolio to maintain its competitive edge over its peers.

Leveraging Virtensys’ technology, Micron wil be able to develop PCIe-connect flash memory arrays, which will allow the users to virtualize SSD storage to make data centre operations more efficient.

The SSD market is seeing consolidations lately. OCZ Technology, a provider of high-performance SSDs acquired Sanrad Inc., a privately held provider of flash caching and virtualization software and hardware, earlier this month.

The lackluster HDD (hard disk drive) market is responsible for the success of SSDs. Slowing PC sales have pulled down the demands for HDDs. But the skyrocketing popularity of tablets and smartphones has boosted the demand for SSDs. But, one has to keep in mind that the commonly sold SSDs are of commodity version, rather than enterprise version. Hence, the margins are low. Moreover, the cost of making enterprise SSDs are too high.

These difficulties could lead to major consolidations in the SSD market going forward.

We are quite encouraged with Micron’s position that has been further enhanced with the Virtensys acquisition.

Micron’s first quarter results were disappointing as the bottom line considerably lagged the Zacks Consensus Estimate. The quarter’s revenue too came in below the year-ago level. The quarter even saw lower ASPs.

But the company’s lawsuit win against Rambus Inc. (RMBS) and tie-ups with Japanese rival Elpida could provide an impetus to the share price.

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