Shares of Micron Technology (NASDAQ:MU) have more than doubled in 2013. It's a welcome bounce for us shareholders after a couple of disappointing years. But the recent surge was powered by a few powerful catalysts -- and they have run their course now.
Is there any reason to stay with Micron's stock, or should owners just cash out the recent gains and reinvest somewhere else?
Let's think about this. My personal Micron stake has gained roughly 80% in two years, easily beating the overall market. That's the first target of any investment that isn't an index fund.
It's also running far ahead of most of the alternatives I considered in 2011. Near-field communications payments haven't taken off like they might've with more industry support, so shares of NFC specialist NXP Semiconductors (NASDAQ:NXPI) have gained just 62%. A market-beating performance, but not the home run I envisioned. I'm glad I picked Micron over this stock.
And some potential bets from the summer of 2011 haven't worked out at all. I dodged a bullet by not investing in mobile radio chip expert SkyWorks Solutions (NASDAQ:SWKS), which was on my radar based on its leading position in the smartphone boom. See the following chart to understand how that potential bet would have worked out.
So by most measures, this has been a successful investment and there's no shame in taking my chips off the table.
But like I said, Micron has burned some of its most valuable gunpowder to get this far. For one, unit prices in the notoriously volatile memory chip market have stabilized lately. That's great news for Micron's margins, and a welcome break from years of plunging prices amid a skewed supply and demand balance. But is it sustainable, and can Micron pull this lever any harder?
Hold that thought.
The other batch of recently fired sulfur and saltpeter is the recently closed acquisition of bankrupt Japanese rival Elpida. The deal made Micron the second-largest maker of DRAM memory chips, with a particular emphasis on memory for mobile applications. Gee, that's good news -- but that clearly won't happen again. Isn't it time to reap the rewards?
And this is where you bring back the thoughts about memory pricing. You see, the biggest upside of the Elpida deal is the pricing power it gives to Micron.
As a minority player with an exclusive focus on memory chips, Micron has always been at a disadvantage. Much larger supplier Samsung has ben free to set the pace of global memory manufacturing, often pumping out an oversupply that kept prices low and falling. The South Korean company doesn't mind this effect because it's also a huge consumer of memory chips -- not to mention a broadly diversified business that doesn't rely on memory sales to drive the bottom line.
But now the Micron-Elpida combination holds market power nearly matching Samsung's. Micron can now drive pricing trends by adjusting its manufacturing flow, rather than just responding to trends set by others.
So we're likely to see firmer memory pricing for years to come, as Micron starts to wield its newfound pricing power.
So no, I don't think this is the peak for Micron. The second load of TNT should keep the first one burning for a while. Ask me again if NAND and DRAM prices start plunging again, but give Micron some time to grow into its new breeches first.
I'm keeping my Micron shares for at least another year. Let's watch these catalysts combine their powers.
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