David Einhorn suffered a humbling beating this year as his $11.0 billion hedge fund Greenlight Capital lost some 14%. This was one of its worst performances ever, especially during the month of August (-5%). Einhorn is famous for being an activist investor, looking for weaknesses and strengths in order to go long or short. He is also not shy about taking risks. In his second-quarter letter to investors, he said, “we maintain our small investment on Greek banks,” because the high-risk investment could potentially yield high returns.
Apple, Inc. (NASDAQ:AAPL) is one of Greenlight’s major holdings, accounting for some 11% of its portfolio. However, the second-largest holding is Micron Technology, Inc. (NASDAQ:MU), the U.S.-based semiconductor manufacturer, including some 38 million shares. Micron’s performance has not been stellar, but Einhorn remains bullish on this stock even though he has sold other technology stocks like Marvell Technology, Playtech, and EMC Corporation (software).
Einhorn’s bullish sentiment over Micron may be based on that company’s recent announcement that it’s developing a new type of computer memory with Intel Corporation (NASDAQ:INTC), which is said to be more efficient than its predecessors.
According to them, this is the first new type of memory since the launch of NAND flash memory, which led to the development of the smartphone. It has the potential of being up to a thousand times faster. Micron’s president Mark Adams says that one of the greatest obstacles in modern computing is the time it takes the processor to access data in long-term storage space. The new memory will change this, allowing for much faster access to data.
The technology has attracted attention from China’s Tsinghua Unigroup. China, the largest semiconductor consumer, accounts for almost half of computer chip demand (for domestic and export markets even if it has to import 90% integrated circuits.
NTEL and Micron have also announced the development of 3D technology XPoint, non-volatile memory, which could revolutionize the market. The XPoint memories are up to a thousand times faster than Nand and ten times denser than Dram. Moreover, it will be available at a lower price than that now-mature technology.
Intel and Micron have already started production in their joint plant in Lehi (Utah). There are few details about the technology itself: just that it is a three-dimensional structure with no transistor memory cells. We also know that the technology has groundbreaking potential. And it’s no surprise that investors like Einhorn are interested in Micron.
Zhao Weiguo, president of Tsinghua Unigroup, has already met Micron’s board members to gauge the feasibility of an acquisition with U.S. authorities. Should it be rejected on national security grounds, as noted by Senator John McCain, Tsinghua could still ally with Micron to enable it to develop its sales in China while negotiating a production on Chinese soil of flash memory drives and other devices.
The rumors are that if Tsinghua were to acquire Micron, it would pay some $21.0 billion. Micron has suffered over the past two years for the first time due to weaker demand for dynamic random access memory (DRAM) chips used in PCs. But it now has the new technology to benefit from the smartphone market as well as servers and other chips used as storage on mobile devices and computers.
Micron became a major supplier of Apple’s iPad and iPhone, acquiring Japan’s Elpida in 2013 for about $2.0 billion. In July,Einhorn said in a letter to investors that Micron Technology would be worth more than Netflix, Inc. (NASDAQ:NFLX) in the next few years. (Source: Greenlight’s Einhorn says Micron ‘will be worth more than’ Netflix, Reuters, July 13, 2015.)
Einhorn is bullish on semiconductor technology, and in Micron over the long run. He said that while Micron will be “bright” for the next several years, Netflix had “pushed its promises into the distant future.”