Earlier in January, Micron (NASDAQ:MU) went over $60 for just the third time in its decades-long history. My InvestorPlace colleague Luke Lango believes the worst is over for the company on the suplly/demand front, suggesting MU stock could hit $70 just around the corner.
I don’t disagree with his assessment of which way the wind is blowing. But far away from Micron’s headquarters in Boise, a battle is brewing in a Michigan courtroom that could put Micron’s future growth in question.
The X100 SSD
In my article about Micron in November, I wrote that the company’s X100 SSD product, a high-performance memory solution based on 3D XPoint technology, had the potential to diversify the company’s reach beyond its core commodity memory chips.
“Micron’s innovative X100 product brings the disruptive potential of 3D XPoint technology to the data center, driving breakthrough performance improvements for applications and enabling entirely new use cases,” said Micron Executive Vice President and Chief Business Officer Sumit Sadana at the October 2019 launch.
As a long-term hold, I remained bullish about Micron stock and its future in the memory chip market. The X100 was a critical piece of that projected future success.
And now, far away in a Michigan bankruptcy case, Micron and Intel (NASDAQ:INTC) are being sued by the Energy Conversion Devices Liquidation Trust (ECDLT), which represents the creditors of Energy Conversion Devices (ECD), a company created by Stanford Ovshinsky, a prolific inventor with more than 400 patents to his name.
Ovshinsky died in 2012; that same year, ECD filed for bankruptcy.
The Chain of Events Leading to a Lawsuit
In a complicated chain of events, ECD, which created several patents related to phase-change memory and the 3D XPoint technology, licensed its intellectual property to Ovonyx, a company created by former Micron CTO Tyler Lowrey and Ovshinsky, to commercialize the technology.
In exchange for the licensing rights, ECD would receive a 0.5% royalty on Ovonyx’s future revenue. Ovonyx went on to sub-license its IP, generating almost $60 million between June 1999 and May 23, 2012.
Without getting too deep into the weeds, ECDLT has made seven charges against Micron, Intel, Lowrey, Ovonyx, and Ovonyx Memory Technology LLC.
The ECDLT argues that the royalties owed were not paid by the defendants named in the suit. It also claims that Micron, according to a great article in Computer Business Review, “bears successor liability for Ovonyx’s debts.”
Out of the seven charges, three are against Micron, two against Intel, and two against Ovonyx Memory Technology.
While the odds of ECDLT having any success against Micron and Intel are minimal, the proceedings will likely take a while, which could shine a negative light on Micron’s efforts to push the X-100 SSD into the data center community.
The Bottom Line on MU Stock
I think it’s important to recognize that Micron’s core business is starting to improve, something my colleague has alluded to.
“So for the next few quarters, strengthening demand will converge on reasonable supply levels in the semiconductor industry and create huge revenue, margin and profit tailwinds for most companies, including Micron,” Lango stated Jan. 27. “Right now, the music is playing loud and clear for Micron, and that music will only get louder and clearer over the next few quarters. As it does, MU stock will keep pushing higher, likely to levels above $60 and closer to $70.”
At current prices, a $70 share price represents a 24% upside over the next 12 months. That’s not a bad return.
However, if you’re more risk-averse like myself, this lawsuit Micron’s embroiled in is the last thing it needs as it attempts to broaden its horizons beyond memory chips; iIt’s still worth buying MU stock, but I’d keep a close eye on future proceedings.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
