Technology stock

Is Micron Technology stock a buy ahead of upcoming earnings? (NASDAQ:MU)

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One of the challenges of analyzing the memory market is that we get data and guidance every three months, and the period in between is largely devoid of financial news. micron (NASDAQ: MU), with its fiscal quarter differing by one month from its counterpart’s calendar quarter, provides an additional set of data. A minimum of relief is Micron’s annual report Presentation Investor Daywhich fortunately took place on May 12.

In this article, I want to add granularity to any guidance provided by Micron ahead of its June 30, 2022 earnings call for the fiscal third quarter ending May 2022.

Korea Memory Exports

In March, semiconductor exports from Korea, home to No. 1 Samsung Electronics (OTC:SSNLF) and SK Hynix (OTC:HXSCL), soared 44.2% year-on-year to 10.8 billion dollars, achieving the 17th consecutive month of growth. Semiconductors became the first export item to exceed $10 billion. April exports of semiconductors, the country’s main source of foreign exchange, soared 15.8%. Semiconductor sales rose 15% in May.

Memory Growth Catalysts – Memory Technology and Content

Technology is one of the biggest enablers for Micron. Micron’s 1βnm DRAM will start ramping up before the end of 2022. MU ranks first in technology for DRAM as shown in Table 1. MU is focused on improving cost competitiveness and believes that in 2022, it ranks second in cost among DRAM vendors, up from #3 in 2016.

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The information network

For NAND, MU has announced that its next-generation 232L 3D NAND will start ramping up before the end of 2022. MU ranks first in technology for NAND, as shown in Table 2. The company believes that in 2022, it ranks first in terms of cost among NAND vendors, up from 4th place in 2016.

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The information network

End application’s demand for memory bits continues to increase

Chart 1 shows the increase in memory content demand for Micron’s end-use applications.

  • The data center bit market is expected to grow at +28% DRAM CAGR and NAND at +33% CAGR.
  • The automotive bits market is expected to grow at a CAGR of +40% DRAM and NAND at a CAGR of +49%.
  • The mobile bit market is expected to grow at a CAGR of +14% DRAM and NAND at a CAGR of +24%.
  • The PC bit market is expected to grow at a CAGR of +9% DRAM and NAND at a CAGR of +21%.

Chart 1

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Micron

Mobile application

In two Seeking Alpha articles, I rebutted MU’s “analyst” downgrades due to slowing mobile and PC sales. I pointed out that even if mobile and PC unit shipments were stable or declining, the increase in bit-per-unit shipments would be positive. Readers can access these articles titled “Micron Technology: Winter May Be Coming, But Not This Year…Ni The Next” and “Micron Controls 55% Of Automotive Semiconductor Memory Market”

In mobile, although I expect smartphone shipments to drop by 4% in 2022, 5G smartphones are expected to grow by 25%. NAND content per smartphone is expected to increase from 120 GB in 2021 to 280 GB in 2025. DRAM content will increase from 5 GB to 9 GB, as shown in Chart 2.

Chart 2

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Micron

PC request

Similarly, PCs had 9GB of DRAM in 2021, but Apple’s M1 Pro packs in up to 32GB of DRAM. Micron estimates that Apple’s M1 Ultra will pack up to 128GB of DRAM, as shown in Chart 3.

Chart 3

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Micron

server request

The data center is the largest market for memory and storage, and Micron reported that in its first fiscal quarter, data center revenue grew more than 70% year over year. another due to continued demand for the cloud and a resurgence in enterprise IT investment. At FQ1, Micron launched the 7400 SSD, the first data center NVMe SSD to use its in-house developed controller and firmware with its DRAM and NAND. The company expects strong revenue growth from its SSD data centers in the second quarter, driven by increased sales of its NVMe SSD products as well as strong demand for DDR5 as customers prepare for launch new server products in the year 2022.

Gigabytes (“GB”) shipped per server will increase by 3X for NAND and 2X for DRAM over the next few years, as shown in Chart 4. There have been rumors that Intel (INTC) will delay its Xeon 4th generation scalable. The Sapphire Rapids processor would impact server growth and therefore MU. This guess is wrong.

Chart 4

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Micron

DRAM and NAND metrics

In March 2020, the US government initiated lockdowns and work/stay-at-home orders resulting in an explosion in demand for memory-intensive products. PCs were purchased for working from home, for example, and video conferencing became the norm. Both required memory either at the client (PC) level or at the enterprise level to increase bandwidth.

Although unit shipments at the start of 2021 increased linearly, ASPs fell dramatically following sharp price increases during the height of the Covid pandemic, as shown in Chart 5.

Since DRAM and NAND production was also somewhat impacted by Covid, unit shipments were down slightly but ASPs were up sharply with demand. We can see that this is the rise and subsequent fall of ARK Innovation ETF (ARKK) shares during this period.

Chart 5

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The information network

I have plotted the DRAM and NAND MoM ASP changes for the same period in Chart 5. For April 2022 we can see that there was a slight decrease in DRAMs (-0.4%) and a larger increase (+1.5%) of NAND which followed three consecutive months of decline.

Key takeaway for investors

The University of Michigan’s preliminary June sentiment index fell to 50.0 from 58.4 in May. This is the lowest level on record since the university began collecting consumer sentiment data in November 1952. Record gasoline prices helped push the consumer sentiment index down. Rising inflation continues to frustrate consumers – around 46% of consumers surveyed blamed inflation, up from 38% in May.

Chart 6 shows the correlation between consumer sentiment and inflation in the United States over the past one-year period.

Chart 6

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Y-Charts

There is also a correlation between the 10-year Treasury rate and the MU share price. As Chart 7 shows, since the start of 2022, the 10-year Treasury yield has risen while the MU stock price has fallen. This inverse correlation is not only associated with MU, but with most tech stocks, which I have discussed in several recent Seeking Alpha articles.

Chart 7

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Y-Charts

According to an article from Nasdaq.com:

“The most crucial factor driving tech stocks in 2022 has been the 10-year Treasury yield. This is the yield investors earn for buying 10-year notes issued by the US Treasury. is the annual rate of return that investors can expect when buying a risk-free US government bond, and it is widely regarded as the “risk-free rate” for the US economy.

This relationship has been exceptionally strong in 2022. As you can see in the chart below, the sharp rise in the 10-year throughout this year has directly led to a sharp drop in technology stocks. So if you’re looking to buy the decline in tech stocks, you want to wait for the 10-year peak.”

On Micron’s F2Q 2022 Earnings Call on March 29, 2022, the company reported that for F3Q 2022, DRAM bit growth would be flat at 8% QoQ while NAND would grow 11% from flat QoQ growth in F2Q. Since then, Barron’s has reported slowing smartphone and PC sales. Even if memory content increases by generating end markets, the slowdown in sales will impact earnings.

Micron has a 55% exposure to PCs and mobile consumer products, which the company expects will drop to 38% in fiscal 2025. This high exposure raises some uncertainty about whether MU will hit earnings when of the next earnings call on June 30.

Chart 8 shows that MU has a strong buy rating for both Wall Street and Seeking Alpha’s Quant. Factor ratings are also strong, with degraded momentum due to declining equity prices and the recent downgrade.

Chart 8

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Looking for Alpha

Currently, I consider MU a buy. When the macro and geopolitical issues subside, they will in turn moderate the 10-year treasury. Concerns about slowing consumer end products and “spot” ASPs are overblown, as are Intel’s server processor lags.