Wednesday, June 8, 2011

Micron's Performance

In the last month the stock price of Micron Technology has dropped more than 15% because of various macroeconomic and industry specific reasons.
 Today the stock has declined 5% as Goldman Sachs downgraded Micron to sell, on the basis of the weak recovery in DRAM prices and slow down in computer sales. Yet, it seems that market didn’t come to a single consensus regarding the DRAM outlook. On May 11, Raymond James said DRAM prices are stronger than people realize. On May 13, Sterne Agee argued that DRAM prices would be stronger in the second half of the year.
  However, the primary catalyst for MU’s decline was earnings report by Hewlett Packard on May 17th, as the computer giant significantly lowered its guidance, expecting PC sales to decline. The situation got worse when Hewlett Packard’s CEO, Mr. Apotheker, sent email to senior 10 executives that was leaked and resulted in a major sell off of HPQ and other computer and chipmaker companies by investors. In his email Mr. Apotheker mentioned that HP needs to cut back on expenses and slow down hiring; “We must watch every penny and minimize all hiring." Since then, Micron shares have been trading under 10 dollars per share. Negative outlook in PC sales considerably impacted MU’s stock price, as 40% of the revenue for Micron comes from DRAM, a type of memory which is primarily used in computers.
It seems that market is also concerned about Micron’s trial that begun today.  Rambus Inc. is suing Micron Technology and Hynix, for patent infringement. However on May 13th U.S. Court of Appeals for the Federal Circuit unanimously agreed with Judge Robinson's decision in the U.S. District Court in Delaware in favor of Micron that Rambus, Inc. wrongfully destroyed evidence. We believe that the trial might take a while, but we think based on previous decisions the outcome will be favorable for Micron.
Analyzing Microns fundamentals, product line and recent developments we still think that MU is one of the best plays in the industry. We see less volatility in revenue, as MU shifts from DRAM to NAND and Flash memory.  We think that innovation will be a primarily driver at Micron. On May 31 MU sealed a deal with Intellectual Ventures, the invention and patenting giant, which grants access for many patents. This strategic access will drive future innovation and development of superior products at Micron Technology.  Less than week after the announcement of the deal, Micron announced that it has developed the world's fastest enterprise solid-state storage system. This new RealSSD P320h series delivers extreme performance and endurance demanded by data-intensive enterprise applications including cloud computing, high-performance computing, data analytics, business intelligence, and video on demand.
This week Apple announced that it is trying to shift from Samsung, as its major chip supplier, to Intel, Micron and Sandisk. This might be a great opportunity for Micron, considering that just single IPhone has in it $80 dollars worth of chips. Besides that, Apple’s announcement of ICloud is another big opportunity for Micron. . ICloud lets users to store their music and files on the cloud storage. Cloud computing is a big consumer of NOR and NAND.  Even 40% of MU revenue comes from DRAM, another 40% is coming from NAND and Flash segments. We see Micron Technology as the one of the industry leaders, and think that it is well positioned to capitalize on growth of cloud computing and increased demand for NAND. However we are cautious about DRAM outlook and we believe that the stock is trading right now as if DRAM sales are going to be weak.

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