Something to Cheer For Micron Technology, Inc. (MU) Investors
Micron Technology, Inc. (NASDAQ:MU) shares were one of the few stocks to get hammered the most in the last one-year period. Its earnings beat in the last three quarters failed to arrest the trend as the demand for DRAM was witnessing a downtrend and the investors were concerned over the growth of the stock and the firm. As a result, the stock has lost two-thirds of its value from the 52-week high price currently. Does it deserve such treatment from the investors? The valuation of the stock does not suggest it. At least four primary factors indicate that the stock is grossly undervalued compared to the industry performance. One of the reasons for such hammering was the short-sellers. Now, that most of the short-sellers have gone back, it is time to look whether it is the right time to enter the stock as there are some other factors to cheer about.
Micron Technology, Inc. (NASDAQ:MU) believes that DRAM industry bit supply growth drop to low-to-mid 20% in the current range. It might sound that this is not a good factor for the company. It is true. However, if one considers that the drop was estimated to be much more than what was indicated, then the current forecast should be a better one. The company also expects the demand to be in the same range in the long-term and expects that to result in healthy market fundamentals. As far as NAND Industry bit supply growth of mid-to-high 30% in the current yea, there is little room for any upside possibilities and will come in line with the expectations.
Micron Technology, Inc. (NASDAQ:MU) is betting on the cost and performance advantages of its 3D NAND as it sees as a driver for improved adoption rates, as well as, densities in key storage markets. The chipmaker is also focused on reducing costs for DRAM in its fiscal third quarters itself due to the deployment of its 20nm technology. Another factor that the company is counting upon is its 3ND NAND ramp in manufacturing, which is progressing well. The company expects considerable bit growth, as well as, cost per bit reductions commencing from the fall season. If the company’s earnings topped expectations in the last three quarter, it was because of the execution at the operational side and it still believes that there is an opportunity to enhance its competitive position in the market place.
GDDR5X To Get Strong Yield
Micron Technology, Inc. (NASDAQ:MU) is also focusing on its GDDR5X pilot program, which was already running and the mass production is expected to happen this summer. The company expects strong yield from the product with bandwidth hitting as high as 13 Gbps already on early hardware. On the other hand, the mainstream GDDR5 topped out only about 7 Gbps. Its Director for global memory graphic business, Kris Kido, reportedly said that its objective was to provide options, as well as, flexibility in the market. That meant its GDDR5X and HBM would be competing each other.
Micron Technology, Inc. (NASDAQ:MU) is also focusing on the high-end space market, which is considered to be strong. That is because of the Advanced Micro Devices, Inc. (NASDAQ:AMD)’s R9 390X and NVDIA Corporation (NASDAQ:NVDA)’s GTX 970 current position in the market place. Both were priced around $300 – $380. The advantage that Micron is counting upon is that GDDR5X uses a compulsory lower operating voltage of 1.35 volts. Though GDDR5 supports both 1.35, as well as, 1.5 volts, it is only the high-speed GDDR5 that uses 1.5 volts. Its efficiency level is said to be higher and uses only 70% of energy as the chip per bit of information in similar use-cases.
Markets Are Positive
Micron Technology, Inc. (NASDAQ:MU) shares witnessed downtick despite valuation metrics because of the fear that SAMSUNG ELECTRONIC KRW5000 (OTCMKTS:SSNLF) would eat away a big chunk of the market share. It is enjoying a market share about 46.4% compared to Micron’s 18.5% share. However, the Korean firm indicated that supply growth is slowing, which meant that the oversupply position is getting reduced and that is a favorable factor for everyone in the industry. As a result, the market turned into position from negativism. Now, there is a belief that DRAM oversupply position, which formed in 2015, would ease in the later part of the current year.
That meant Micron Technology, Inc. (NASDAQ:MU) will have a better fiscal year 2017 as the oversupply position will turn into supply tightness before the second half of the next year. Another factor that will help the company is that Samsung indicated that it would reduce its DRAM capacity growth. This may be a reaction to the market situation. However, it would help others in the industry to price their chips better. Another chipmaker, SK Hynix, sees the DRAM shipments to grow Q-o-Q by mid-teens in the second quarter. This is also a favorable factor for the whole of the industry.
Currently, Micron Technology, Inc. (NASDAQ:MU) stock is certainly not valued fairly. For instance, its PE for the trailing twelve-month period is 10.4 times while the industry enjoys 19.4 times. Similarly, its price to book and price to sales represented 0.8 times each compared to the 2.4 and 2.5 times the industry average enjoyed currently. Also, the three-year average revenue growth is 25.3% while the industry witnessed 15.5% only. Sterne Agee analyst, Douglas Freedman, has a price target of $18 and a buy rating on the stock.
No market will keep sliding forever. There is bound to be recovery. And that will happen in the case of the memory chip unit too. Therefore, Micron Technology, Inc. (NASDAQ:MU) is one of the stocks to be watched to produce solid returns in the upcoming years. That is because of the expected recovery in the memory chips and the launch of fresh memory to boost its sales. The price might be at the bottom level now and it can be beneficial only if it is held for the long-term.
Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.
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