Micron Is Having a Lousy Year but Its Stock Is Still in the Game
Micron Technology (MU) - Get Report isn't having a good year, and those who own the stock aren't, either.
Following the release of disappointing fiscal third-quarter results, the microchip manufacturer said that it will cut a significant number of jobs next year to save $80 million a quarter, which dragged the stock down nearly 10%.
However, sales have increased, an apparent paradox.
The source of the problem is per-bit pricing, according to the Chief Executive Mark Durcan.
Micron's DRAM chips aren't as profitable as they once were, despite the company cutting production costs, and that has made investors skittish.
Too much competition was once blamed for decreasing profitability.
Micron spent a significant amount of money acquiring rival microchip producers to consolidate production but with little success. Samsung Electronics has managed to hold its own even as Micron expanded.
"People are just wondering when it stabilizes and gets better," MKM Partners Analyst Ian Ing said. "They've consolidated a lot of the industry, but they're still sub-scale."
Summit Redstone analysts reiterated their sell rating on Micron this month. But investors in the stock might want to actually hold off on selling, given that as of July 7, 17 of 22 analysts rated it buy, and just five rated it sell.
Micron "has established itself as one of the leading worldwide providers of semiconductor memory solutions. The company's quality memory solutions serve customers in a variety of industries including computer and computer-peripheral manufacturing, consumer electronics, CAD/CAM, telecommunications, office automation, network and data processing, and graphics display," according to Zacks Investment Research.
Rather than dumping Micron stock, all signs point to investors waiting and weathering the storm.
After all, Micron is still producing new technology, with its stock rising again, following the release of a new SLC NAND Flash chip. Much of this technology is being used in the booming VPN sector and private networking.
The new chip offers features such as "optimal, 10-year uncycled data retention, on-die error correction code supported for both NAND and SPI interfaces and advanced security features, which include permanent block locking and one-time programmable data capability," according to a statement from Micron.
Although it is subject to the whims of the market and the panic of investors, Micron's acquisition of major competitors means that it has, in fact, seriously cut down the field, making Samsung its only real rival. A hit to Samsung would be good news for Micron.
Ing reiterated the temporary nature of Micron's recent financial struggles.
"They've got the long view," he said. "They're doing the right things, but they need more time in a difficult industry, in a difficult environment."
Micron is still very much in the game, and its new chip feeds into the fast-growing Internet of Technology sector, which promises to be very lucrative.
Gartner predicts that the IoT market will be worth $3.5 trillion by 2020, which means that Micron is focusing on the right area.
The average analyst 12-month price target on Micron is 15, which would represent an 18.7% gain.
Like Ing said, the company is doing the right things. The firm, and its stockholders, need simply to wait out the storm and continue developing and producing microchips.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.