Micron Technology, Inc.(Nasdaq:MU) beat earnings forecast last month, and closed at $61.07 on March 21, near the 52-week high of $63.42.
Since then, the stock of micron has receded, and stock is now at $48.46 per share. The Micron stock has more than doubled from December 2016.
MU is one of the world’s largest manufacturers of memory chips. Micron accounts for 21% of global dram sales in the third quarter of 2017, putting it behind Samsung and SK Hynix. Three held the combined market share of more than 95%.HP has a strong position in the flash memory required 11.5% of the market in the fourth quarter.
Micron was recently downgraded by UBS analyst Timothy Arcuri who led the cyclical problems with the stock. However, most of wall Street remains bullish on shares of micron.
The Micron stock has done well since I last wrote about it. But the stock micron still a buy?
Stocks The Pros Microns
Companies professional military risks: last week, the President of the group “Eurasia” Ian Bremmer tweeted the names of American companies that depend on China.
U.S. companies with the highest share of sales in China
1 skyworks with 82.7%
2 Qualcomm 65.4%
3 Qorvo 62%
4 cards Broadcom 53.7%
Technology 5 Microns 51.1%
— Ian Bremmer (@ianbremmer) April 3, 2018
Given the talk of a trade war between the US and China, it looks relatively.
However, I do not see China as a big threat Mikron-at least for now.
China is working to create a domestic semiconductor industry, but now it is still heavily dependent on imported memory chips.
And as I mentioned earlier, about 95% of global sales of DRAM chips come from Apple and the two companies, both of which are South Korean.
China can threaten to buy more of the competitors of Micron of South Korea? Maybe. However, China is also angry with South Korea.
HP could also benefit if China decides to ease tension in relations with the United States. Last month, trump asked China to buy more chips from American manufacturers such as micron, and the Chinese government offered to do so.
High drama price: MU is very favorable market conditions over the past few years. Prices for memory chips increased by 26 to 31 percent in 2016.
According to DRAMeXchange, which tracks the prices of memory chips, the price of chips rose in 2017 76%.
The result is high profits for producers of memory chips. According to Finviz, the net margin microns is 38.7%.
Shares fell: problems with micron shares can already be evaluated, since the company’s stock lost ground over the last month and remains 24% from its 52-week high.
Action Against Micron
Power buildup: chip prices can be high, but eventually supply will catch up with demand.
Last year, manufacturers of memory chips have increased capital expenditures. Samsung doubled its capital expenditures from $11.3 billion to $26 billion IC Insights President bill McClean commented:
“In the 37 years of tracking the semiconductor industry, I have never seen such aggressive cost reduction of semiconductor capital. The scope of costs Samsung this year is unprecedented in the history of the semiconductor industry!”
By gender, global spending on semiconductor equipment increased by 37% to 56.6 billion USD in 2017.
This means more power and lower prices on the horizon.
Cyclical stocks: as I mentioned in 2016, the new product is cyclical shares. It depends on the price of memory chips, which can fluctuate wildly. To buy cyclical stocks such as micron at the wrong time can hurt your portfolio.
To look at how the shares of micron were living in 2015, when prices fell drama:
The stock price of micron has declined, falling from the mid 30-ies in December 2014 to less than $10 per share in the spring of 2016.
According to McKinsey on semiconductors, chipmakers like Apple usually have their own factories at full capacity even when prices fall, as their fixed costs are very high. Equipment is aging, even if it’s not used so much.
This excess production leads to a fall.
Not so cheap: micron shares look cheap at first glance, trading at less than 6 times earnings and 5 times forward earnings.
However, other measures such as price/book and price/sales, Micron stock is not so cheap.
The price/revenue and price/book better measure of value for cyclical companies like Apple, whose earnings fluctuate in the business community and often lose money during downturns. On an annual basis, micron lost money from 2007 to 2009.
Summary for Micron stock
I’d be careful in buying shares of micron. If I bought it, I would try to insure against downturns.
Global boom is a memory chip may continue for a few quarters, but looks like it may be slowly exhaled. The Bank of Korea recently published a report that he believes that DRAM demand may weaken in the second half of 2019.
China is a big challenge for manufacturers like Apple, and they will need to innovate to stay ahead.
China is making some progress in February, Apple. (Indexshares aapl) agreed to buy flash memory chips from the Chinese manufacturer of chips called the Yangtze storage technology to phones sold in China.
How to write, Lucas Khan had no position in any of the aforementioned securities.