Micron Making Moves: Are Semiconductor Stocks Set For A Surge?

Chris Lau, Kapitall: Earnings season can be a volatile time for semiconductor stocks and investors alike. Just look at Micron.

With US markets rising post-government shutdown, you’d expect many companies to perform well. But not everyone is rising, especially in the tech sector. Just look at the earnings warnings from Teradata (TDC) and IBM (IBM), or consider what happened to Advanced Micro Devices (AMD) when it’s latest results came out.

[Read more from Kapitall during earnings season: 5 Tech Stocks to Watch After Earnings Warnings]

Some stocks reporting quarterly results witnessed a sell off, thanks in part to the bullishness already built in to their stock price. Still, some opportunities emerged. Consider semiconductor producer Micron Technology ( MU ).

Click on the interactive chart to see price data over time.

Micron pricing weakens

Micron was up by nearly double in 2013 prior to the earnings report, so some investors had motivation to book gains.
  • The company earned $0.20 per share, beating estimates by $0.04 per share.
  • Revenue was $2.84 billion, far higher than the consensus estimate of $2.7 billion.
  • The average selling price (ASP) rose 5% while volumes rose 6%.

Investors may have fretted because Micron guided ASP growth to be in the single digits. The gains may be attributed to Micron’s recent acquisition of dynamic random-access memory (DRAM) manufacturer Elpida.

Supply constrained

Micron could still benefit in the next year from current constraints in the supply of memory. DRAM and NAND (a type of non-volatile computer memory) continue to be in short supply, which pushes up their prices in the overall market. 

Investors should note that as Micron shares dip below a recent price of $17, selling could eventually subside. Micron reported only a month’s worth of Elpida sales in the fourth quarter results. Next quarter, results could look much better when a full quarter is included.

Micron pointed to a desire to reduce its debt during its conference call. The company is looking to manage operational costs while concurrently benefiting from solid demand and constrained supply.

And Micron has a healthy balance sheet, with $4.2 billion in cash. There may be rewards to reap from the acquisition of Elpida. But will the optimism spread across the industry, or trickle down to shareholders?

 

(Written by Chris LauStock price data sourced from Finviz.)

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