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How Micron Technology's Shares Fell 16.6% Last Month

By Anders Bylund - Nov 10, 2018 at 11:35PM

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Investors didn't know what to make of the news when this memory chip specialist took control of a longtime partnership with Intel. At the end of the month, one analyst found some bullish trends in the underlying markets.

What happened

Shares of Micron Technology (MU -2.95%) fell 16.6% in October 2018, according to data from S&P Global Market Intelligence. The rocky month featured a big change to a partnership between the memory-chip maker and semiconductor giant Intel (INTC -2.86%), and it ended on a relatively high note.

So what

On Oct. 18, Micron and Intel announced that the Idaho-based memory expert will take full ownership of a joint venture between the two companies. The venture, which concerns so-called 3D XPoint technologies, will become a division of Micron in the third quarter of 2019. The companies had already agreed to stop working together on the ultrafast XPoint memory platform by the middle of next year, moving on in different directions from that point. In exchange, Micron will send Intel a $1.5 billion cash payment.

Micron shares fell as much as 16% over the following week as investors and analysts digested the potential long-term impact of this move.

At the very end of October, analyst firm KeyBanc issued a report on the memory market with bullish implications for Micron. In KeyBanc's view, the current trend of falling unit prices for NAND and DRAM memory chips looks likely to stabilize in 2019.

Beyond that, the firm expects big demand boosts from emerging macro trends such as the Internet of Things, more memory-hungry smartphones, and the rise of solid-state storage devices, which could hold those prices steady for years to come. That's a break from more bearish analyses of the memory sector, which sometimes conclude that the market is headed toward yet another profit-sapping price war.

In response to KeyBanc's report, Micron shares rose 13% between Oct. 29 and the first day of November.

An uncut circular wafer of semiconductor chips in the making.

Image source: Getty Images.

Now what

Speculation about another price war has been making the rounds all year long, keeping a tight lid on Micron's share prices. At this point, the stock has fallen 26% in six months to sit 40% below its 52-week highs, despite steadily increasing earnings. As a result, Micron's stock can be bought at bargain-bin valuation ratios like 3.4 times trailing earnings and 5.2 times free cash flows.

If KeyBanc is even a little bit right about the memory market's long-term stability, investors who pick up Micron shares today should be happy with that decision if and when that investment thesis plays out.

Spoiler alert: I believe that KeyBanc is on the right track, and expect the stock to rise in 2019 and beyond.

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Stocks Mentioned

Intel Corporation Stock Quote
Intel Corporation
$36.34 (-2.86%) $-1.07
Micron Technology, Inc. Stock Quote
Micron Technology, Inc.
$53.65 (-2.95%) $-1.63

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