Right now memory chip maker Micro Technology (MU) is a microcosm of the stock market as a whole. There’s good news–pretty clearly–on the horizon. But the worry is that it’s already mostly priced into the stock.
This week Micron, the largest U.S. maker of memory chips, gave a forecast for the fiscal second quarter that sure made it sound like the company, and the memory chip sector in general, was about to turn the corner after getting hammered on slumping demand for chips for personal computers and smartphones.
Fiscal second-quarter revenue will be $5.1 billion to $5.5 billion, the company said Wednesday. That compares with an average analyst estimate of $4.99 billion in revenue. The adjusted loss per share will be 21 cents to 35 cents. Analysts had projected a loss of 62 cents.
The stock was up 65.1% for 2023 as of the close on Tuesday, December 19. The 52-week week range for the shares is $48.43 to $82.99. The average analyst target price is $85.73.
I think you begin to see the problem in just those numbers. The stock would have been a great buy at $50, but at the December 20 close of $78.69 it’s awfully close to the top of the 52-week range and the analyst target price.
But the problem gets worse if you look at the stock’s long-term performance. This is a stock to trade, and not a stock to buy and forget.
A year ago, on December 21, 2022, the shares traded for $51.19. A year before that they sold for $89.39. The year before that, on December 21, 2020, the price was $55.40. Go back another year to December 2, 2018 and the price was $30.32. Looking at the price data for the last five years this stock traded at a high of $96 on February 15, 2022 and lows of $32 to $34 in June 2019.
Memory chips are essentially a technology commodity with customers being able to switch easily from chips of one maker to chips of another on price. (South Korea’s Samsung Electronics and SK Hynix are the other two big memory chip players.) The industry has relatively high-fixed costs so when equipment is running at full capacity the companies in the sector make good if not great money. (Remember that customers can shop around to find the lowest price.) And when demand slumps and all that fixed cost is sitting idle with machines running at much less than full capacity, the companies across the sector lose big.
Right now Micron is predicting that 2024 will be a rebound year for the industry with 2025 showing record levels of production and sales. The rebound will be built on recovery from a slump in sales of chips to smartphone and PC makers. The 2025 projection assumes that strong demand from the AI boom for the expensive memory used in data centers to help develop AI software will lead to record sales.
Micron now expects PC memory chip unit volumes to grow by a percentage in the low- to mid-single digits in calendar 2024, following two years of declines. Smartphone demand will “grow modestly” in 2024.
In the fiscal first quarter, which ended November 30, Micron’s revenue rose 16% to $4.73 billion. The company had an adjusted loss of 95 cents a share. That compares with analyst estimates of $4.54 billion in sales and a loss of $1 a share.
