Micron (MU) was my inaugural stock pick for the first issue of the Mad Hedge Technology Letter on February 1, 2018, and it's time to check this neck of the woods after yesterday's earnings call.
Since I urged readers to jump into this stock at $40, it has skyrocketed to an intraday high of $61.85.
Not bad for a seven-week return.
A bet on Micron is a bet on its visionary leader, Micron CEO and UC Berkeley graduate, Sanjay Mehrotra, who has the propensity to be brilliant.
Mehrotra individually holds 70 chip patents.
He initially was credited for driving outperformance as SanDisk's CEO until Western Digital (WDC) acquired SanDisk in 2016.
Mehrotra has worked at every point on the supply line and knows the industry inside out. He is a pathfinder in a sea of cutthroat competition, and I drop everything to listen to his earnings call. You should do the same.
Rattling off numbers will not do justice to the brilliance of Micron. The great metrics are endless not to mention EPS growth up 15% QOQ, and up over 200% YOY. Cash flow generated from operations was $4.3 billion representing 59% of revenue, which compares to $1.8 billion a year earlier.
Almost every number outperforms sequentially with raised guidance.
The key takeaways were SSD (Solid State Drive) sales up 80% YOY, and the sale of cloud and enterprise solutions more than tripled YOY. Particularly, DRAM chips are Micron's bread and butter, and the DRAM market is suffering from tight supply.
DRAM comprised 71% of total quarterly revenue, and DRAM revenue was up 14% QOQ and 76% YOY.
Shipment volume rose while ASPs (Average Selling Price) increased in the low double-digits. DRAM gross margin was 66% in the quarter and up 22% YOY.
Roaring demand for DRAM and NAND products ushered in record quarterly revenues for the automotive market segment. Strong numbers came from ADAS (Advanced Drive Assistance Systems) and in-vehicle experience applications.
An expanding smorgasbord of DRAM and NAND solutions mean Micron is well-positioned to continue to captain the ship in this rapidly growing market.
A surge in the percolating industrial IoT (Internet of Things) market, expanding factory automation, and surveillance applications mesh nicely with Micron's product offerings.
The newest standards in mobile, automotive devices require rapid data analysis in storage, enterprise and cloud servers, including machine learning, training and inferencing to supplement the computing taking place at the edge.
Automotive clients will thrive from Micron's highest speed LPDDR4 (Low Power Double Data Rate Memory) solutions and other upcoming memory technologies such as the high-bandwidth GDDR6 graphics memory.
The fostering of AI materializes in AI smart cockpits in new automotive models. The instrument dashboard integrates with infotainment and telematics systems with a centralized computer and storage architecture to create a data center on wheels.
Voice and gesture recognition mixed with driver alert monitoring capabilities forge more intelligent and computer intensive automobiles requiring more powerful memory and higher capacity.
Micron has plowed significant investments into the data center to jack up memory and high-performance storage. An important sign is Micron's embedment into the heart of smart car development.
Smartphone makers paraded around high-end smartphones with bigger 4K displays, multiple high-resolution cameras, and 4K HDR video recording at the Mobile World Congress.
Capacity for SSDs are rising in new flagship models using 64GB of flash memory at a minimum. Micron's NAND solution is tailor-made to meet the demand, and Micron is best of breed in TLC (Thin Layer Chromatography) utilization.
Consumers will see a new emphasis on the implementation of A.I. and A.R. into new phones by OEMs (Original Equipment Manufacturer).
It soon will be standard to include facial and voice recognition, real-time translation, fast image search, and scene detection. This is the next gap up for smartphones.
Micron is perfectly positioned for the onslaught of fresh data the world will grapple with soon. High-end smartphones are traversing toward 6GB of LPDRAM, boding well for Micron considering Micron's preeminence in LPDRAM.
The hallmark of this technology is power efficiency essential for optimizing battery life. The LPDDR4's goal is to double data rates (up to 3200 Mb/s) over last generation RAM. Faster memory speeds will support the new migration toward this progression.
Capital investments of $7.5 billion will sustain Micron's leadership status, and Micron targets R&D at 30% to total revenue. Cost will incur transforming to high-value solutions and accelerate with revenue. Steps have been put in place to begin execution of funding the development of the fourth generation of 3D NAND technology.
Micron is in the midst of improving its R&D facilities to accommodate the future of 3D NAND nodes. The trend of higher R&D costs is universal in the semiconductor area as optimal bit growth makes a huge difference in how products are formulated.
The only hiccup in an extraordinary quarter was a maintenance issue at a Taiwan DRAM fab plant, reducing production and dragging down revenue for next quarter by 2%.
However, if you stand back a few feet, Micron's results were nothing short of spectacular. Mehrotra's way of laying out the awe-inspiring future, and Micron's ability to cross-intersect with almost every major secular trend especially pinpoint attention to automotive vehicles is genius.
Micron sold off hard on the earnings and was down more than 8% aftermarket, but this is certainly a case of rising too far too fast mixed with the broad-based China tariff sell-off.
This stock is a tap in to pierce the $100 mark and is pivotal to the future of American technology. It should be at the vanguard of any serious portfolio, and a slew of Micron Trade Alerts is waiting in the pipeline.
The fascinating thing here is that the dynamics of the chip industry are totally changing. It used to be highly cyclical and volatile. But chips are becoming so endemic to the modern economy that they are stabilizing the industry on a long-term basis.
These earnings are no flash in the pan, no one-hit wonder.
Load up on Micron shares on any serious dip.
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Quote of the Day
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