Please ensure Javascript is enabled for purposes of website accessibility

The Memory War Is Over!

By Anders Bylund – Updated Apr 6, 2017 at 12:51AM

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

The price war in the computer memory market is over. And Micron is still standing.

The light at the end of the tunnel isn't always an oncoming bullet train. Sometimes it's simply daylight at the end of a long, dark night.

Computer memory maker Micron Technology (NYSE:MU) is enjoying that cheery kind of daylight today. The entire memory market has been mired in oversupply and weak demand for more than two years now, forcing the entire industry into a destructive price war. And now, the war is over. At the very least, we're looking at a cease-fire.

Micron reported much stronger memory sales in the fourth quarter than the third, whether you're looking at unit volumes or dollar sales. Average selling prices actually increased for once, and management talked about improving markets and increased demand.

That still wasn't good enough to pull Micron out of the red ink. Micron reported a net loss of $88 million or $0.10 per share, and the full-year net loss added up to $1.8 billion. But Micron runs a capital-intensive business, and $2.1 billion of that annual loss came from depreciation and amortization of those expensive manufacturing facilities. Micron doesn't use third-party manufacturing specialists like United Microelectronics (NYSE:UMC) or Taiwan Semiconductor Manufacturing (NYSE:TSM), but builds and runs top-notch facilities of its own. Along with JV partner Intel (NASDAQ:INTC), Micron is ready to deliver 34-nanometer NAND drives that keep it at the forefront of memory technology.

When you back out those massive infrastructure costs from years past, Micron is doing surprisingly well. Operating cash flow stopped at $357 million in the fourth quarter and $1.2 billion for the full year. And because the memory industry at large is trying to stem the tide of huge oversupplies, current capital expenses are small and free cash is flowing in healthy amounts.

I think it's safe to say that the memory sector is a safe place to invest again. Unfortunately, market consolidation and a few bankruptcies have left us with precious few stocks to choose from. Micron and SanDisk (NASDAQ:SNDK) are the only easy answers, as Intel has distanced itself from memory chips, Samsung can be purchased by those with access to the Korean market, and everyone else is a high-risk penny stock at best.

Micron's stock price has tripled in 2009, and SanDisk’s has doubled. Is it too late to jump aboard the memory bandwagon, or will this stock bounce higher still? Discuss in the comments below.

Fool contributor Anders Bylund owns shares in Taiwan Semiconductor, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings and a concise bio if you like. Intel is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days. 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
Intel Corporation Stock Quote
Intel Corporation
INTC
$27.52 (-1.96%) $0.55
Taiwan Semiconductor Manufacturing Company Limited Stock Quote
Taiwan Semiconductor Manufacturing Company Limited
TSM
$73.87 (-2.33%) $-1.76
United Microelectronics Corporation Stock Quote
United Microelectronics Corporation
UMC
$5.91 (-1.83%) $0.11

*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.