To say this year has been a tough one for owners of Micron Technology (MU) would be quite an understatement.
This year has been downright miserable for Micron shareholders, with MU stock down more than 50% year-to-date in the wake of a computer-memory market meltdown.
Unfortunately for MU stock holders, the supply of solid-state storage became excitedly plentiful, crushing strong prices enjoyed by Micron and its peers just a couple of years ago.
There’s finally chatter that the worst is over, however, as demand for next-generation 20nm DRAM and 3D NAND memory is finally ramping-up and give some pricing power back to Micron Technology.
And Tuesday’s post-close earnings report may well mark the pivot point for the company, as well as for MU stock.
Micron Technology Earnings Outlook
Just so there’s no confusion, the numbers expected for Micron’s fiscal Q1 (ending in October) should be awful. Analysts collectively think year-over-year revenue will fall 24% $3.46 billion, which will lead to a 75% dip in earnings per share of MU.
All told, Micron is only projected to post a profit of 23 cents per share of MU vs. a bottom line of 97 cents per share in the same quarter a year earlier.
The good news? That weakness may already be priced into MU shares.
As was noted, MU stock is down more than 50% this year, giving back most of the 480% gain it achieved over the course of 2013 and 2014, when the computer memory market was robust despite a fading PC market. Tablets and smartphones needed DRAM, and Micron had it to offer.
That wasn’t a misprint — there was a time not that long ago when computer memory was a robust, profitable business.
Perhaps as much as any industry, computing components are cyclical, fueled by rapid advances in computing technology and manufacturers that spend quickly and heavily to tap into an opportunity. The end result is, of course, a flood of too much capacity. The next great quantum leap in technology makes that capacity obsolete, starting the “rush to get in” cycle all over again.
The next big wave of technology adoption is upon us, with 2016 being anticipated as a real breakout year for the 20 nanometer DRAM Micron is now producing.
3 Things for MU Owners to Mull
While Micron is in a position to turn the corner, so to speak, whether or not it does will largely be determined by three key factors. In no certain order:
1. 3D NAND memory: 3D NAND isn’t faster than most forms of memory available at this time, but it’s a denser type of storage, and very durable. The question is, to what extent will the world market need such massive storage capacity? We’re already into terabyte-drive territory for individual consumers, and multi-terabyte drives are now affordable for organizations with huge storage needs. It remains to be seen if greater storage capacity at the expense of speed will fly in a big way.
2. Inotera: Micron already owned a third of peer and rival Inotera Memories, but last week it announced it was acquiring the remainder of the company for $3.2 billion. The market has mixed opinions on the merger. Some say Micron overpaid for Inotera, paying a 40% premium to own a partner that wasn’t necessarily a game changer. Others say the addition of Inotera’s DRAM technology will lead to some compelling synergies.
3. Samsung: While both companies are in the same boat and suffering the same supply glut, Micron is still in a head-to-head battle with Samsung (SSNLF), the other key manufacturer of DRAM. Samsung was ahead of the curve this year, launching its 20 nanometer DDR4 and LPDDR4 advanced products. In the meantime, however, Micron has caught up with Samsung. Samsung will need an unlikely technological and/or cost-savings leap this year if it’s to fend off Micron.
Bottom Line for MU Stock
While there are good reasons to see MU as a value play here in the shadow of a miserable 2015, jumping into Micron now — right in front of Tuesday afternoon’s earnings news — is akin to catching a falling knife. That is, it’s fine if you’re successful, but if you’re wrong, you’ll pay a steep price.
It’s still earned a spot on watchlists, however, as the recovery is apt to come sooner or later.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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