Micron Technology, Inc.: Tsinghua Deal Could Be Catalyst for Micron Stock

Micron TechnologyA Very Rocky Road for Micron Stock

Everybody loves a comeback and Micron Technology, Inc. (NASDAQ:MU) is the new comeback kid. Despite a trouble-plagued stretch with too many lows and few highs, the company is pointed in the right direction and Micron stock is poised to ascend.

If anything, the past year has not been boring for this Boise, Idaho-based semiconductor provider. In July 2015, Micron Technology was the surprise object of a $23.0-billion informal bid by China’s state-sponsored Tsinghua Unigroup Ltd. Had the bid gone through, the acquisition would have been the largest takeover of a U.S. firm by a Chinese company. Micron ultimately turned down Tsinghua’s overtures—a decision that could be seen as a victory of pride over profits.

While still reigning as the largest U.S. maker of dynamic random-access memory (DRAM) chips favored in traditional computing, it has not been the most vigorous competitor when facing Samsung and Hynix in the creation of NAND chips for mobile devices and storage. This played out in Micron Technology’s third-quarter financial results from June: $2.9 billion in revenue, down 25% year-over-year, while losses rose to $79.0 million, a $48.0-million increase from the previous quarter.

Micron stock’s poor quarterly numbers were followed by the announcement of a 7.5% cut in its workforce, which would impact approximately 2,400 workers. Micron Technology estimated this would save it $300 million in 2017. These layoffs were the third in eight years, with previous cuts announced in 2008 and 2013.

Adding insult to injury was a lawsuit filed in June by Harvard University charging Micron with patent infringement in its memory chip manufacturing process. Harvard is demanding back royalties and changes in how the Micron technology is created. (Micron also faced a February 2015 patent infringement lawsuit filed by the Massachusetts Institute of Technology, but that was dismissed in June by the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board.) (Source: “Harvard sues Micron, alleging patent infringement,” Idaho Statesman, July 13, 2016.)

Why Micron Stock Is Appealing

So, why isn’t it time to write off Micron stock? For starters, the company has more than a few surprises up its proverbial sleeve. Last week, Micron adopted a rights agreement—also known as a “poison pill”—that would prohibit any change of ownership if five percent or more of the company’s outstanding common shares were purchased by a company or an individual. The company also filed an 8-K form that will enable it to retain tax benefits related to its recent losses.

These moves can be seen as a strategy to buffer Micron stock from any new surprise bids by unsolicited prospective buyers. It would also suggest that the company wants to remain an independent force in this game for the long haul. This is especially the case with the company’s dealing in China: media reports on Micron’s meeting with Chinese company Wuhan Xinxin Semiconductor Manufacturing over a possible NAND manufacturing deal affirms that Micron has no interest in becoming a subsidiary or division of a Chinese entity. (Source: “Would Intel Buy Micron at $22 a Share?,” Barron’s, July 26, 2016.)

Then there is also the great potential of the 3D NAND market. NAND chips only make up roughly one-third of Micron’s output. 3D NAND represents a new solution that could erase the lethargy from the microchip industry. Micron is the second chip vendor to commercialize 3D NAND and last month began production of its 32-layer (32L) 3D NAND flash memory. (Source: “Micron’s 3D NAND Innovative Fabrication Process,” EE Times, July 13, 2016.)

This breakthrough has brought out both Tsinghua and XMC, which are trying to license the 3D NAND solution from Micron.

The Takeaway Regarding Micron Stock

Micron certainly deserves praise for its resilience to push ahead despite hitting potholes over the past year. Its power is firmly rooted in its perseverance and those that continue to support Micron stock should be rewarded for their faith and loyalty.