Micron Technology (MU) is one of the world’s largest manufacturers of DRAM and NAND memory technology … but Micron stock is also one of Wall Street’s biggest laggards in 2015.
Micron’s advanced semiconductor products compete with those from Samsung (SSNLF), Intel (INTC) and SanDisk (SNDK), among others. However, unlike its competitors, Micron’s exposure to the PC market is significantly higher at nearly 30% of sales.
And ongoing weakness in the PC market — along with an overstock of DRAM (an essential component to desktop and laptop PCs) — has been a drain on MU stock as investors remain concerned about the company’s future.
IDC predicts that worldwide PC shipments will decrease by 6.2% this year, marking the fourth consecutive year of declining volume. As more consumers shift to tablets and smartphones, desktop PC and laptop sales will remain depressed, which could lead to ongoing trouble for Micron.
As an added “bonus,” Micron has a significant customer base in Japan — and this year’s weakness in the yen has had an effect on net income.
Year to date, MU stock is down more than 30%, as increased competition and slowing PC sales have caused many investors to sell their shares.
But while the future of the PC market looks grim, Micron stock isn’t a sell.
Micron Stock Holders: Don’t Panic!
IDC and other industry analysts expect the PC market to regain some lost momentum with the release of Windows 10 from Microsoft (MSFT) later this year.
Plus, DRAM sales only comprise a portion of Micron’s revenue, and despite a current lull in that market, MU’s other products are selling well. The memory component needs of tomorrow’s mobile devices are ever-increasing, and Micron is in a great position to meet the mobile DRAM and NAND flash needs of smartphone and tablet OEMs.
For example, it has been rumored that Apple (AAPL) is considering upping the mobile DRAM in the next iteration of the iPhone from 1 GB to 2 GB in an effort to ensure better competition with Samsung’s flagship Galaxy S6, which contains 3 GB.
Revenue has outpaced the industry, and MU stock will rebound in the second half of this year, most significantly when Microsoft’s newest operating system is finally ready to go.
Until that time, Micron will continue to amass DRAM inventory while focusing its efforts on selling NAND chips for mobile devices and furthering the development of its 3D NAND product — a joint venture with Intel that could be a true game-changer in the flash memory market.
Bottom Line on Micron Stock
Micron is the third-largest semiconductor company in the U.S. by market share and revenue, trailing industry goliaths Intel and Qualcomm (QCOM). Micron’s product line is divided into three main categories of memory chips: DRAM, NAND, and NOR.
Despite decreases in worldwide PC sales that led frightened investors to sell their shares of MU stock, DRAM sales account for only about one-third of Micron’s total revenue. Plus, when Microsoft’s Windows 10 OS is released later this year, the PC market is expected to pick up steam, which will be a boon for Micron’s DRAM business.
3D NAND and mobile DRAM products will remain solid revenue generators for Micron, as the shift to tablets and smartphones with increasing memory requirements continues to rise. An ongoing partnership with Intel to develop improved NAND memory technology will allow Micron to adequately compete with current NAND market leaders Samsung, Toshiba and SanDisk.
The mobile and PC memory market is extremely competitive, but Micron’s position as the third-largest player in the sector should remain steady. Current Micron stock investors should avoid panic selling and instead hold onto their shares.
Prospective investors should consider the current MU stock price an unnecessary discount … and an attractive entry point.
As of this writing, Greg Gambone did not hold a position in any of the aforementioned securities.
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