MU Stock: Is Micron Technology, Inc. a $25 Stock?
This Is Big for MU Stock
Micron Technology, Inc. (NASDAQ:MU) is getting ready for battle, as competition heats up in the microprocessor space. Micron stock could soar if the company wins, but we need to think carefully about whether it’s equipped for success.
After all, a large portion of the company’s product portfolio is designed for laptops and personal computers. To put it mildly, people are buying fewer computers than they used to, especially as mobile devices grow to be the dominant platform.
Instead, consumers are now demanding mobility from their technology. It’s not enough that TV shows and movies can be streamed online; they must be viewable on smartphones and tablets as well—and from anywhere. That is the new standard.
As such, Micron is caught up in an industry-wide transition. The reduced demand is decimating prices for two traditional forms of memory, DRAM and NAND, which generate a majority of the industry’s profits. It’s a straight up bloodbath out there. (Source: “Micron’s Q4’15 Earnings Preview: PC DRAM & 3D NAND In Focus,” Forbes, September 29, 2015.)
But there may be hope for MU stock yet. The company has thought through the endgame and realized it needs a two-fold strategy to come out on top.
Micron Stock Needs a Competitive Edge
Moving forward, it seems like there are two fronts on which Micron will have to fight. Both will have a ridiculous amount of rivals waiting to slog it out, but I really do think Micron could come out on top. Here’s why.
It turns out the core technology behind memory chips had a finite capacity for growth. Each new chip added less and less speed to previous models, which meant that innovation was desperately needed to make a great leap forward.
Usage of mobile devices and Internet applications was going up, yet the chips needed to run these devices were not growing more capable. There was a fundamental disconnect on the technological side of the industry, but rather than focus on research and development (R&D), everyone decided that mergers were the best insurance.
Dell Inc. bought EMC Corporation for $67.0 billion, Intel Corporation picked up Altera for $16.7 billion, and Avago Technologies Limited grabbed Broadcom Corporation for $37 billion. Those are just a few of the high-profile merger and acquisition (M&A) activities in the sector. (Source: “2015 already a record year for chip sector M&A,” CNBC, September 21, 2015.)
Micron, on the other hand, made sure it would be competitive in the near future. The company made a revolutionary breakthrough that could make memory chips 1,000 times faster. It secured a technological advantage to keep MU stock on an upward path. (Source: “Intel and Micron: New memory chip is 1,000 times faster than NAND,” MarketWatch, July 28, 2015.)
Only after it was protected with a solid product did Micron get back on the merger bandwagon. That’s the order I prefer, innovation before consolidation.
MU Stock Outlook for 2016
On the whole, Micron stock seems better prepared for competition than its rivals.
Sure, bringing Broadcom under its banner would technically broaden Avago’s market share, but that doesn’t guarantee the company anything. Companies that buy memory chips have so many options that they’ll gravitate towards quality rather than price.
Micron made sure to cover that base before unloading cash on an acquisition. It recently finished its piecemeal purchase of Inotera Memories, a Taiwanese-based manufacturer of microprocessors. The deal should cost roughly $3.2 billion. (Source: “Micron Technology Agrees to Acquire Remaining Interest in Inotera Memories of Taiwan,” Micron Technology, Inc. web site, December 14, 2015.)
So it wasn’t that Micron thought M&A was a bad idea; the company just thought that R&D was a better one. On this, I wouldn’t be surprised to see MU stock hit $20.00, $22.00, or even $25.00 per share.
