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Analyst and Fund Manager with almost 20 years investment experience. Coverage includes a variety of industries, with a focus on technology. Particularly focused on value stocks, poorly understood or under-followed situations, and contrarian perspectives. Primarily invest in special situations... More
  • Micron - Some Historical Charts 0 comments
    Jun 11, 2013 3:05 PM | about stocks: MU

    Overnight in Asia, DRAM spot prices were once again up big. Memory component tightness has been reported throughout the electronics supply chain, and we'd expect the situation to worsen as production for many OEMs ramps in 2H. Notably, Apple (NASDAQ:AAPL) has been running well below full production as they work off excess iPhone and iPad inventory from 2012. They should significantly contribute to increased component demand as they prepare to launch a host of new products in 2H and into 2014.

    We recently wrote about Micron (NASDAQ:MU) and how they should benefit from a reconfigured memory industry - especially since Samsung, with its enormous smartphone/tablet business, now stands to gain much more by NOT aggressively adding memory production capacity. This significant departure from Samsung's historical norms sets Micron, and to a lesser extent Sandisk (NASDAQ:SNDK), on course for dramatic share price increases, in our view.

    So, it is with some amusement that we saw yesterday's Micron downgrade from Wells Fargo. This now marks the 3 or 4th Micron downgrade of the last few months. With Micron on the cusp of the massively accretive Elpida acquisition, rising memory prices, 2H seasonality, and rational memory suppliers, this downgrade appears way too early at best.

    Historically, when times have gotten good in the memory industry, they have gotten very good. And when they have turned, it has been due to supply - with too many players adding capacity at the top of the cycle.

    For those new to the Micron story, this is an example of how Micron's price can move when DRAM supply is tight, such as was the case in early 1995. While this was a time of burgeoning PC demand, Micron massively outperformed Intel (NASDAQ:INTC) over this period. This pick up was caused by supply tightness.

    Micron stock price chart: Jan. 1, 1995 - Sep. 9, 1995

    (click to enlarge)

    Source: Morningstar.com

    Of course, when DRAM players get too aggressive with their capacity add, the industry can turn on a dime. We suppose the sell-side analysts that have downgraded Micron could have this in mind:

    Micron stock price chart: Sep. 9, 1995 - July 15, 1996

    (click to enlarge)

    Source: Morningstar.com

    We believe every cycle has its own nuances. This cycle, as we've previously detailed at great length, looks particularly attractive and potentially quite long-lasting (perhaps even sustainable over years). We are uncertain whether these good times for the memory industry will last - they never have, but we think there's more reason for optimism today than any time in history. Downturns have almost always been caused by excess supply. With no meaningful capacity adds on the horizon, and a likely material uptick in 2H demand, we think we're still relatively early on the top chart.

    Disclosure: I am long MU.

    Themes: Semiconductors Stocks: MU
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