Key points:
Micron Technology is about to enter an upward cycle driven by limited supply, growing demand, and rising product prices;
Now, Micron’s layout has ushered in the four end market segments;
Its stock price is quite It is cheap, and its current valuation is similar to the down cycle;
During the time when the new coronavirus is raging around the world, Micron Technology company has also become a fish in the pond. Although it remains a global leader in the growing memory and storage industry, its stock price has fallen 40% in the past thirty days, making Micron stock look very attractive.
DRAM and NAND product prices are expected to continue to rise
Multiple factors are now contributing to the increase in memory product prices, including increased demand for remote work due to the global outbreak of the new coronavirus, insufficient inventory, and tight supply. DRAMeXchange predicts that DRAM prices will increase by 30% in 2020, while NAND flash prices will increase by 20%.
Image source: DRAMeXchange
In a pessimistic perspective, DRAM prices are expected to rise by 20% due to the huge gap between rising demand and limited supply (resulting from capital expenditure cuts), but on the other hand, if the global Demand has dropped significantly, and the price of NAND flash memory will drop by 5%. However, since DRAM contributes the largest chunk of Micron's revenue, accounting for about 67% of total revenue, continued rise in DRAM prices will be very beneficial to the company even in a pessimistic scenario.
Micron is ushering in the spotlight in all end markets
Micron has been committed to developing high-quality products in all its end markets. Its mission is to help the world work smarter, operate more naturally, and communicate more effectively. . Because Micron is the only company in the world to have products in all three categories: DRAM, NAND, and 3D XPoint (which is the world's fastest SSD), it can provide its customers with differentiated, high-value products. In addition, all end market segments in which Micron operates - including solid-state drives, mobile devices, data centers and automotive - are growing, creating favorable conditions for Micron's growth.
Source: Micron presentation
In the SSD market, due to market supply shortages, its price trend has been promising. Its 96-layer SATA SSD for data centers has been certified by multiple OEMs.
In the mobile device market, bit shipments of its MCP DRAM and NAND products grew 50% quarter-on-quarter. In the first quarter of 2020, the market share of its MCP DRAM products increased by 50% year-on-year. The real driver of future memory and storage demand will come from the popularity and development of 5G in mobile devices, including the release of affordable 5G phones, which can cost as low as $300 and come with a minimum DRAM capacity of 6G. To take advantage of growing 5G demand, Micron began producing LP5 DRAM products, which offer the highest bandwidth while ensuring the lowest power consumption. Micron estimates that approximately 200 million 5G mobile phones will be sold worldwide in 2020. In the future, as 5G penetration accelerates around the world, this LP5 DRAM is expected to be widely used.
In the data center market, the market is expected to witness significant growth as everything moves to the cloud and demand for remote working surges due to the novel coronavirus. TrendForce expects that data center shipments will grow by 5.15% based on current forecasts, and even in a pessimistic scenario, positive growth will be achieved, with a growth rate of 3.1%.
Image source: DRAMeXchange
In the automotive market, although global car sales are still mired in quagmire, with the development of autonomous vehicles, the demand for memory and storage capacity has been growing. In the first quarter, Micron Technology certified and delivered BGA NVMe SSD for automotive applications. This product is very suitable for the storage needs of autonomous driving functions. The self-driving car market is estimated to exceed $200 billion by 2025, and global automotive memory chip market revenue will exceed $2 billion during the same period.If Micron can become the global leader in this market and capture 50% of this market, its annual sales will increase by $1 billion by 2025.
Strong Balance Sheet , debt is mostly long-term debt
Micron has a strong balance sheet. As of the first quarter of fiscal 2020, it had about $7.59 billion in cash and short-term investments, compared with total interest-bearing debt of just $5.65 billion. As a result, the company has a net cash position of $1.94 billion. Moreover, the majority of the company's debt is long-term, due in the years 2024-2033. In addition, the actual interest rates on most of Micron's notes and term loans are not high, ranging from 3.10% to 6.33%.
Image source: Micron's 10-Q filing
In addition, Micron has credit facilities that can help the company increase its financial flexibility. Just a week ago, in the midst of the storm, it announced that it would draw down all $2.5 billion of capital originally due to mature in July 2023, a move that could increase the cash at the company's disposal in the third quarter and, of course, increase debt levels by the same amount. . But it's a good move at a time when global markets are shrouded in great uncertainty due to the novel coronavirus.
Conclusion
Micron’s stock price has been hit by overall negative market sentiment. This is why although its performance is in an upward cycle, it is still sold according to the valuation of a downward cycle. In the short term, its stock price may fall further. The negative impact of the novel coronavirus in China, Japan and Taiwan will likely be reflected in the company's second-quarter earnings. So I think the second quarter is going to be a weak quarter for Micron. Micron CEO Sanjay Mehrotra also believes the company's financial results will bottom out in the fiscal second quarter and start to pick up from the third quarter. However, given that it's a real bargain right now, has a strong balance sheet, and is in an industry that's in an upcycle, it might be time to buy its shares.
