The memory industry today is an intriguing one. Long-term trends in artificial intelligence, 5G communications, self-driving cars, cloud computing, and the Internet of Things all require tons of memory. Yet today's memory stocks are currently under pressure.
Memory makers have increased supply this year to meet the seemingly insatiable demand for their chips, but due to concerns of slowing demand, memory stocks were pummeled this summer over fears of a cyclical downturn.
Of course, while revenues and earnings might decline near term, computing and storage needs aren't going away. Thus, today's fears may have set up an opportunity for long-term investors. If you're willing to risk short-term pain for long-term gain, which is the best memory stock to own?
Currently, there are six main producers of computer memory. Out of the six, I have a clear favorite: Micron Technology.
Image source: Getty Images.
The current memory landscape
In order to understand Micron, one needs to understand the different types of memory.
Volatile memory is the fastest, but doesn't retain data when power is turned off. The dominant form of volatile memory is dynamic random access memory (DRAM). Basically, the more speed you need, the more DRAM is required.
Non-volatile memory, or "storage," retains data even when a power source is turned off, but it's much slower than DRAM. There are currently two dominant types of non-volatile memory today: hard disk drives (HDDs) and NAND flash.
HDDs are based on magnetic spinning disks, a technology that has been around since 1956 and is still going today due to its extremely low costs. NAND flash was invented by Toshiba in the early 1980s, based on electronic floating-gate transistor technology. While NAND Flash has traditionally been more expensive than HDDs, its smaller form factor and other advantages help with total cost of ownership. In the future, NAND is expected to displace HDD technology in many use cases.
A new disruptor?
While it's unlikely the current memory regime will be replaced anytime soon, there's one new memory technology expected to be introduced next year from chip giants Micron and Intel called 3D XPoint that could actually make some waves.
3D XPoint was developed as a non-volatile memory that's much faster than NAND Flash and HDDs (though more expensive), but it's still a bit slower than DRAM. In other words, it fits right in the middle. While unlikely to displace current mass-produced technologies, it could take some market share in specific applications ideally suited to its speed-versus-storage ratio.
The participants
Here are the current memory players and their respective product portfolios:
|
Company |
DRAM |
NAND |
HDD |
3D XPoint |
|---|---|---|---|---|
|
Intel (INTC +12.93%) |
X |
X | ||
|
Micron (MU +10.95%) |
X |
X |
X | |
|
Samsung (NASDAQOTH: SSNLF) |
X |
X | ||
|
SK Hynix (NASDAQOTH: HXSCL) |
X |
X | ||
|
Seagate (STX +0.00%) |
Minority investor in Toshiba Memory |
X | ||
|
Toshiba Memory, private, minority owned by Toshiba (TOSBF +0.00%) |
X |
X | ||
|
Western Digital (WDC +5.11%) |
X |
X |
Micron's product portfolio makes it the best out of these six: It's one of only three major DRAM manufacturers and also has a strong position in NAND. It doesn't have exposure to the hard disk business, which is profitable but seems destined to decline over the long term.
The three companies that provide both DRAM and NAND have an advantage. These companies (which include Samsung and SK Hynix) can more efficiently package both DRAM and NAND in solid-state drives for servers and managed NAND solutions for mobile phones. These integrated solutions generally carry higher prices, and can help offset the swings in basic memory components.
Micron has some extra advantages as well. One, it has 3D XPoint, which it should begin selling in late 2019. Should 3D XPoint take some share away from DRAM or NAND, Micron will still benefit, while Samsung and SK Hynix won't. Additionally, Micron is the only U.S.-based DRAM manufacturer, so investors don't have to worry about currency swings and corporate governance problems that may come up with its Korean counterparts.
Finally, Micron is a pure play on memory. Intel's main business is in processors, and Samsung has other large businesses in televisions and mobile phones. While these companies benefit from that diversification, it also dilutes the impact of their memory segments.
Set up for the long-term
In a volatile and technologically advanced industry, change can be rapid -- that's why investors should look to future-proof their portfolios as much as possible. With Micron's diverse product portfolio, net cash position, and new $10 billion buyback program, it's well set up for future success, despite near-term turbulence.
