The last time I took a hard look at Micron Technology Inc. (NASDAQ:MU), I was skeptical its boom times could last.
I was wrong.
Micron is up nearly 40% since I wrote that if you do buy, you need to watch it closely. If you have been watching, it has been with a big smile on your face.
They may be right.
Micron finds itself the only American participant in an oligopoly among memory chip makers, along with Sony Corp. (ADR) (NYSE:SNE) and SanDisk Corp. (NASDAQ:SNDK). That is a very good place for a company to be.
Good Times for Chip Memory – and Micron
Computers need fast memory more than ever, on both the client and the cloud (formerly the server) side. Chips deliver both speed and durability – there are no moving parts as with disk memory, and prices per bit continue to come down.
Memory speed is especially important as artificial intelligence increases. Disk memory is great for back-up, but it can’t deliver the speed a graphics processor needs to get instant answers to your Alexa device, or a self-driving car, or even a high-end game machine. For that, you need chip memory.
This has given Micron a higher peak on its stock price than even in the palmy days of late 2014, when it topped $36 per share before falling back to an early 2016 low below $10 per share. The current run into the 40s is well-supported by earnings. At its current price, the price-to-earnings ratio remains below 10.
Ironically, semiconductor chips are one of the few products that still suffer from inventory recessions. These used to be common in the general economy, before the 1980s and the rise of bar codes on pallets that let stores order production directly from factories.
It’s quite simple. Demand increases to a point, production ramps up past that point, prices fall below production costs, and manufacturers put the brakes on until demand rises again. What’s happening now is a “super-cycle,” a continued ramp-up in demand ahead of production, for phones, for clouds, and for gaming systems.
Where cautious people like me got caught out was in Micron’s decision to kill its Lexar brand, under which it had been retailing such things as thumb drives and camera memory cards.
I thought it meant the company was retreating. It was merely redeploying its supplies to more profitable areas.
In the past, booms like the one Micron is enjoying inevitably turned to bust. That’s why analysts, even now, are constantly looking for hints this might be the case, as when Micron took down pages for its SolidScale storage arrays recently. This, too, turned out to be just a marketing realignment, moving production for the product line under Excelero, the software supplier it bought part of in May.
The Bottom Line
The bottom line here is that the present boom shows no sign of cresting. It’s built on characteristics of memory chips that make them superior to disks. Chips continue to take share in the total memory market.
Micron’s financials look like a plane taking off, with revenue nearly doubling year-over-year, and an increasing portion of the revenue hitting the net income line, more than one-third during the quarter ending in August.
Based on the recent past, expectations for the November quarter, due to be reported December 26, are modest — net income of $2.11 per share on revenue of $6.34 billion, against net income of $1.99 per share and revenue of $6.14 billion for the August quarter.
It’s likely that Micron will beat that number. The stock should continue to soar. Just keep an eye on the headlines and be ready to bail out at the first sign of failure.
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 email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.