Micron Technology: A Cautionary Tale In A Tough Industry

| About: Micron Technology (MU)
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Using our article "A Semiconductor Stock To Fear, 4 To Watch" as a sounding board, we want to look further into Micron Technology (MU), a pure-play semiconductor stock worthy of investors' attention.

As per Form 13F, the top institutional holders of Micron Technology stock are Vanguard Group, BlackRock Institutional Trust Company, Berkshire Hathaway, FMR, Inc., and Bank of New York, Mellon.

On stock performance, Micron stock is trading at $5.69, close to the lows of its 52-week trading range of $5.06-$9.16, and trailing twelve month EV/EBITDA multiple of 4.7x. This is consistent to its historical performance resulting from volatile pricing of DRAM and NAND. Unfortunately, given the macro weakness in PCs, DRAM prices are expected to continue to work against Micron.

The fundamental performance of Micron is not unique to the company. The company's peers Advanced Micro Devices (AMD), Intel (INTC), and Sandisk (SNDK) have also suffered due to excessive players in a small market. Resulting in declining revenues and contracting margins.

Looking at the balance sheet, as of August 30, 2012, the company has $2.6 billion in cash and short-term investments, and $3 billion in long-term debt. Although near-term maturities are not a concern, the company continues to be highly levered in a capital-intensive industry. This could turn for the worst if DRAM pricing does not improve.

Last, but not the least is the possibility of consolidation in the industry. Micron agreed to acquire Japanese competitor Elpida for $2.5 billion. "This is a highly attractive deal for Micron," Chief Executive Mark Durcan stated. "The combined company will put us in a stronger position in the memory landscape." This could be a saving grace for Micron as the acquisition eliminates at least one player from the market. That being said, the deal is yet to close, and we continue to watch its progress.

We will conclude by saying, there are several moving parts to trigger any improvement in the fundamentals of the company. A watch and learn approach would be most helpful in determining if the story improves from here or if the challenges get worse.

The chart below compares share performance over the past year. "E"s mark earnings reports.

Written by Kapitall's Sabina Bhatia. Tool provided by Kapitall.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.