These are good days for Micron Technology Inc. (NASDAQ:MU). The memory chip maker finds less competition than ever, at a time when demand seems to be skyrocketing. As a result, MU stock is up more than 40% in 2017, and almost 140% over the past year.
Earnings delivered Thursday, after the market closed, were expected to come in at $1.50 per share, on revenue of $5.4 billion. Analysts had a “whisper number” of $1.53 per share.
In the end, Micron earnings beat the street, as did the top line. MU earned $1.9 billion ($1.62 per share) on revenues of $5.566 billion.
And MU stock? Up again, some 2% in Friday’s premarket trade.
The Lexar Mystery
So why did the company abruptly close its Lexar retail unit, which made things like memory cards and flash drives?
A terse blog post on the closing said, “The decision was made as part of the company’s ongoing efforts to focus on its increasing opportunities in higher value markets and channels,” and that it would like to sell the unit. But who wants to buy a company and remain dependent on the seller for supplies?
Lexar is a popular 20-year-old label for things like thumb drives and memory cards used in phones and cameras. As recently as last year it made up half of Micron’s “trade non-volatile” revenue, 31% of the total, but in the second-quarter report that had dropped to 40%.
The move was a mystery to reporters like Sharon Fisher of TechTarget, who wrote that it comes just as new vertical markets like drones are taking off.
Beyond Boom and Bust?
Memory chips are a notorious boom-and-bust market. Micron has lately been on the boom end. The shares are up 44% so far in 2017. MU was a hot stock during the last boom period in 2013-2014, too, exceeding current prices at $35 per share, but it crashed hard in 2015 and hit a 2016 low below $10 per share.
Still, InvestorPlace writers have been pounding the table for the stock over the last month.
Nicholas Chahine writes that you can go long on Micron with confidence. Vince Martin insists that this time it’s different. Will Ashworth writes you should strike while the iron is hot. Richard Saintvilus says MU stock is heading to $40 per share.
My own view is a bit less optimistic.
Micron was founded with money from potato billionaire J.R. Simplot, which is why the company is based in Boise, Idaho rather than California. Since then it has experienced more ups-and-downs than a Mexican telenovela, with multiple rounds of layoffs each time the computer upgrade cycle slowed, and a 2012 plane crash killing then-CEO Steve Appleton.
The company named SanDisk co-founder Sanjay Mehrotra its CEO in April. Maybe he can stop the cycle. Maybe closing Lexar is part of that. Maybe he’ll even move to sell the company — there are constant rumors of its being sold to Intel Corporation (NASDAQ:INTC) when business slows. But nothing ever comes of it.
In short, I have seen this movie before.
Memory prices rise to meet each upgrade cycle, but production exceeds the market need and prices fall again, putting pressure on the balance sheet. Each new generation of memory costs more to produce than the previous one. Micron already has $11.336 billion of debt on $32.355 billion of assets.
The current boom will pass, and MU stock will come under pressure again. If you do choose to buy, make like a potato and don’t take your eye off it.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in INTC.