Micron's Meltdown Shouldn't Be a Surprise
Posted at 2:10 p.m. EDT on Friday, June 26, 2015
How in heck was Micron (MU) so revelatory? What did people think would happen? Some sort of magical return to the personal computer market, a demand surge that would keep the Micron ball in the air?
This stock's getting hammered because it has been so long since people have seen what the stock of a commodity product does when supply exceeds demand.
This isn't much different than what happens to the paper companies -- have you seen them? -- when they produce more than demand can bear. I think the big surprise is that Microsoft (MSFT), Intel (INTC), Western Digital (WDC) and Seagate (STX) aren't down more. Only Microsoft has enough build away from the personal computer industry to sustain a lift here, although that note put out by CEO Satya Nadella was hardly reassuring.
It is ironic that if you make commodity parts for cellphones, you are doing fabulously. If you make parts for the video game chain, you are doing well. But PCs? Awful.
Many people on Twitter (TWTR) are asking me if this is the level they should start buying Micron. To which I say, I always need a thesis before I get involved. (Twitter is part of TheStreet's Action Alerts PLUS portfolio.)
I don't have one. Do you?
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long TWTR.
Posted at 6:15 a.m. EDT on Friday, June 26, 2015
One is a proprietary business with incredibly expensive high research and technology costs, huge barriers to entry and massive investment in plant and equipment and R&D to stay on top.
The other is a pure commodity that seems to have no differentiation at all and can lose share at a time because there are no real barriers to entry, the technology costs are low and research almost nil.
People always seem to confuse the value of technology to some industries like apparel and the value of it to others, like to personal computers. You could argue at this point that there is more R&D that goes into a new form of apparel or a new sneaker at Nike than goes into a personal computer -- and I might champion that theory.
No, that's not fair to Nike. I would definitely say it. Because other than Growth Seekerportfolio holding Under Armour (UA), I would say that Nike is just distancing itself from the pack through sheer innovation, not just marketing might.
Micron, on the other hand, even after all that good spending on flash technology, is still a maker of DRAMs, and there isn't anything about a DRAM these days that's as special as a tech-loaded sneaker. Disagree? Then how is it possible that the average price of a basketball sneaker is going higher, while the average price of a personal computer keeps going lower and taking with it the pricing power of the components inside?
Worse, the world is glutted with personal computers, but to listen to last night's call I would say the world has a shortage of Jordans, even though both have been around pretty much about the same time.
Oh, and it is pretty clear that things are going to get worse. I think Nike made it all but certain that the next quarter is going to look amazing -- no matter where the dollar goes or how Greece shakes out or even how Brazil goes, a swing country because of the World Cup hangover.
Micron? I had been hoping that its 3D NAND business could save the day and keep this stock from burying itself further into the new high list, but I know the orders for NAND capital equipment are picking up, and that can only mean one thing: price competition for this hoped-for favorite down the road.
Now, comparisons are odious. I don't think there is a better group of commodity semiconductor manufacturers than who you would find at Micron.
But Nike? I can't believe how good they are. If it weren't for Kevin Plank, you would think that this company will have no competition in a few years. They are that dominant.
It's funny though, after listening to this call, if it weren't for the selection of Jordan Spieth and Stephan Curry to endorse UA, you would think that Nike is the one that has those two stars -- that's how strong this story was.
Fortunately, there is plenty of room for both.
But unfortunately for Micron, and the sad sack PC business that is getting worse, not better, there is no room for anyone there, and the future looks only dimmer, not brighter.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.