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Summary

  • SanDisk reports earnings after the market closes today.
  • Micron's CEO Mark Durcan scared investors with his frank comments on the trailing position Micron "enjoys" in its NAND business. SanDisk is the ultimate sanity check on NAND.
  • Micron's stock has been strongly correlated with SanDisk's in the past.

SanDisk (NASDAQ:SNDK) reports their 2Q earnings after the market closes. Whisper number is $1.50 versus an analyst consensus of $1.40. If SanDisk presents encouraging numbers, or even encouraging news about the state of its only business-- the NAND market-- this may put Micron Technology's (NASDAQ:MU) CEO, Mark Durcan's, discouraging remarks on the state of Micron's NAND business in the rear view mirror. Long-term SA regulars such as Russ Fischer, LEWhite, Bruce Burnworth and others sold down or closed their Micron positions after Durcan's remarks. I held my small stock position but jettisoned a massive bullish option position.

So what did Durcan say? Mark Durcan made a rare appearance at an analyst presentation, in this case a Bernstein "Strategic Decisions Conference" with their excellent analyst Mark Newman on 5/28/2014. Alas, the only transcript I have is behind a paywall at Bernstein. Here's the most startling admission by Durcan:

<Q - Mark C. Newman>: So another question from the audience here on NAND, you did address it a little bit, but it's more specific, please discuss the missteps in your NAND business, what steps you've taken to remedy this business?

And in what timeframe we should see the milestones hit?

<A - D. Mark Durcan>: Yeah. So again I'd say relative to timeline, it's not going to happen overnight, think in the next two quarters to six quarters you'll start to see improvement and significant improvement respectively.

What have we done? Well, we've reorganized the company, so we've pulled, we really had one organization trying to do way too much. We had a NAND solutions group and it was trying to manage a component roadmap and technology migration strategy, it was trying to manage controller strategy for the mobile space as well as the storage space. ...

I read a ton of Wall Street research and had never seen an analysis that we were 2 to 6 quarters behind our competition. I listen to all the company presentations and had never heard this. To put it kindly, I felt I had been misled. So I voted with my feet and liquidated my massive options position and retained my modest stock holdings. Clearly the stock kept running and my timing was not perfect. I am back in the options as discussed below.

SanDisk, the pure NAND play, is a great litmus test on this portion of Micron's business. SanDisk, unlike Micron, does very polished, professional and positive earnings conference calls. My hope is that today's is no exception and that we have a good sanity check on the NAND market, which put Durcan's comments behind us.

Here's a little table, which shows how Micron's stock has sometimes moved in concert with SanDisk's public comments:

SanDiskMicron Price
TranscriptDeltas
EventDatesDay 0Day +1Day +2Day +1Day +2
Analyst Day5/7/201426.4226.9326.841.9%1.6%
1Q '144/16/201422.4823.9125.326.4%12.6%
4Q '131/22/201423.6523.6422.920.0%-3.1%
3Q '1310/16/201316.9617.1517.031.1%0.4%
2Q '137/17/201313.5913.6913.730.7%1.0%
Analyst Day5/18/201311.3111.2111.23-0.9%-0.7%
1Q '134/17/20139.399.239.35-1.7%-0.4%

Look particularly at Micron's price action after the two most recent events. I believe shareholders WANT to put Durcan's comments behind them. I believe shareholders WANT to push this stock higher. Positive comments from SanDisk could be the catalyst. So is last night's bullish earnings call from Intel (NASDAQ:INTC), which calmed investors that the PC market is not at all dead. In this case, what is good for Intel should be great for Micron.

Back in the options. As stated previously, I've held a small stock position in Micron since early 2013, thank you Russ Fischer! Over the last year, I have had options holdings in the 10s of thousands of contracts. This morning I bought several thousand contracts of the MU 7/19 and 7/25 34 strike calls. I've got my money where my mouth is on saying SanDisk's pronouncements may be good for Micron!

Disclosure: The author is long MU, INTC. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Will Micron Move Up With SanDisk?