E Micron: A Cheap Opportunity?

This may be a bit of a medium-term BAD BEAT, but as we watched the brewing trade war start to eat one of the plays that we loved to trade around $50, Applied Materials (AMAT) we noticed one if its largest customers was also taking a beating. It may very well be that Micron Technology (MU) has become a real victim of a brewing trade war between the U.S. and China. Micron, of course, offers a broad portfolio of high-performance memory technologies, including DRAM, NAND, NOR Flash and 3D XPoint memory. It has been wildly successful in the last few years.

Source: Micron website

However, with all of the back and forth on this trade war issue, we know Micron was recently hit by China stating that it was issuing an injunction against Micron. This spooked the market. Take a look at the price action for Micron of late:

Source: BAD BEAT Investing

As you can see, this strong momentum stock has been stuck of late, meandering ever lower, and seemingly anchored by the brewing trade war. The stock really got hit after Chinese court's preliminary ruling to prohibit Micron from manufacturing, selling, or importing certain DRAM products in China. However, we believe that this is an overreaction as this action accounts for just slightly more than 1% of the company's annual revenues.

The preliminary injunction enjoins Micron’s Chinese subsidiaries from manufacturing, selling, or importing certain Crucial and Ballistix-branded DRAM modules and solid-state drives in China.

Source: Micron website

Again, we have to stress that the affected products make up slightly more than 1% of Micron’s annualized revenues. Since the fourth fiscal quarter is underway, Micron anticipates that the negative impact to revenue this quarter relating to the injunction will be approximately 1%, and the company continues to expect revenue to be within the previously guided range of $8.0 to $8.4 billion. Micron will comply with the ruling while requesting the Fuzhou Court to reconsider or stay its decision. This revenue outlook suggests the appetite for Micron's products as been strong. One thing many aren't considering is whether this action will intensify the shortage of DRAM/NAND storage.

Our colleague Kwan-Chen Ma stated this nicely:

"Before the trade war concern arose, DRAM's demand and prices have been expected to stay strong in the near-term, the capacity adds in 2019 may impact the price negatively. This outlook has been supported by the fact that NAND's 12% bit growth in Q2 was more than offset by 15% price decrease and resulted in a 3% sales decline."

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Disclosure: Quad 7 Capital nor BAD BEAT Investing have any positions in any stock mentioned

Quad 7 Capital is a leading contributor with various financial outlets, and pioneer of the BAD BEAT ...

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Harry Goldstein 3 weeks ago Member's comment

Thanks for taking the time to point out the market's overreaction on #Micron. $MU still has a lot of upside potential and losing 1% of its revenue is not much of a threat to an impressive company.