Please ensure Javascript is enabled for purposes of website accessibility

Memory Stocks Won't Make You Rich … Yet

By Anders Bylund – Updated Apr 6, 2017 at 1:27AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Micron backs out of a potential partnership with the Taiwanese government.

The people will remain uncertain whilst
'Twixt you there's difference; but the fall of either
Makes the survivor heir of all.

-- From Coriolanus, Act V, scene VI, by William Shakespeare

The plot thickens around the future of the computer memory market. The Taiwanese consortium with nearly a billion of government backing picked Japanese player Elpida as its knight in shining armor. Jilted at the castle gates, American chip wrangler Micron (NYSE:MU) is now casting bedroom eyes at the Taiwanese peers who didn't join that official alliance.

There are lots of moving parts in this tricky situation -- bruised corporate egos, the interests of three separate nations, and the rapid consolidation of this deeply damaged industry. Even with lots of government money (pick your pois ... eh, nation), the new Taiwanese consortia may or may not survive the twin sledgehammers of huge overproduction in the name of manufacturing efficiencies, and waning worldwide demand for these memory chips and the gadgets they power.

Chances are that Micron will end up buying something or someone. The largest American memory expert is raising money by selling $450 million of stock and convertible senior debt papers next week. Goldman Sachs (NYSE:GS), Deutsche Bank AG (NYSE:DB), and Morgan Stanley (NYSE:MS) are handling the logistics and taking their customary cut. Micron will collect about $434 million net proceeds after underwriting fees and the like, and that sum will be used for "general corporate purposes, including working capital, capital expenditures, and potential acquisitions and strategic transactions." (Italics mine.)

Every memory maker is hemorrhaging money and desperately seeking cost reduction measures through internal measures and partnerships. A loose "United We Stand" seems to be the battle cry, unless you're a diversified giant like Samsung or Toshiba (OTC BB: TOSBF.PK), both of which seem unwilling to launch a shopping spree amongst their smaller and more vulnerable rivals.

When the dust settles over this battlefield, I will start to consider investing in the survivors. Memory stocks like Micron, Spansion (NASDAQ:SPSN), and Qimonda all run substantial risks of going to zero before all is said and done.

But once the smoke clears, the stocks left standing could be poised for some of the greatest bouncebacks in living memory.

Stay tuned. This is gonna be fun.

Further verklempt Foolishness:

Fool contributor Anders Bylund holds no position yet in any of the companies discussed here, and it'll be a while before he does -- if ever. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Micron Technology, Inc. Stock Quote
Micron Technology, Inc.
MU
$50.10 (0.89%) $0.44
The Goldman Sachs Group, Inc. Stock Quote
The Goldman Sachs Group, Inc.
GS
$301.97 (-3.50%) $-10.95
Morgan Stanley Stock Quote
Morgan Stanley
MS
$81.51 (-3.85%) $-3.26
Deutsche Bank Stock Quote
Deutsche Bank
DB
$8.34 (-5.97%) $0.53

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.