NEWS FROM SAMSUNG PROVIDES AN OPPORTUNITY IN MICRON STOCK

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By Nigam Arora & Dr. Natasha Arora

Signal(s) to enter, add, reduce, exit, hold or change.

Micron stock (MU) is long from $21.77.  It is trading at $63.35 as of this writing.  Partial profits have already been taken.

Semiconductor Memory

There are many types of semiconductor memory.  The two main types are DRAM and NAND.  In both types of memory, there is severe, cutthroat competition.  Micron and Samsung (SSNLF) are two big competitors.

News From Korea

The news from South Korea is that Samsung plans to cut memory production by a “meaningful level.”  This is likely to have a significant impact on the sector as Samsung has about 50% of the DRAM market share.

News From China

There is news from China that the Cyberspace Administration of China will be reviewing imports from Micron.  This could have a significant impact on Micron as about 16% of its revenue is generated from mainland China and Hong Kong.

This is the reason a signal for a Trade Around position is not yet given at this time.  Consider waiting for more clarity and a pullback in the stock price.

The Landscape

Here are the key points in understanding the semiconductor landscape right now:

  • For the most part, memory is a commodity.  During the pandemic, we shared with you in detail that companies were double and triple ordering semiconductors.
  • Because of double and triple ordering, companies are now holding excess inventory.
  • Among various sectors where semiconductor memory is used, here is the demand situation.
    • Demand for PCs and laptops is falling off a cliff.  From the Morning Capsule:

The momo crowd continues to ignore negative news, but prudent investors should not.  For example, Apple (AAPL) stock has been run up even though sales in various segments have not been doing well.  The latest news is that Apple’s PC shipments dropped 40%.  This drop is steeper than the drop seen by Apple’s competitors.

    • Demand for phones has significantly weakened.
    • Demand from data centers has weakened.
    • Demand from automotive is still strong.
    • Demand from other consumer goods has weakened.
    • Demand from other capital goods is weakening.
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Samsung Move Is Positive

Samsung’s move to cut production is a positive.  This will reduce supply, and over a period of time, inventory will be consumed and will return to normal levels.

Price Competition

As overhang from excess inventories reduces, price competition will become less.  It will help Micron’s gross margins.  In the latest quarter, Micron’s gross margins were negative because it wrote off over $1 billion worth of inventory.

History

History shows that the time to buy Micron is usually when excess inventory is beginning to get depleted and competitors reduce production.  If you wait until it is all clear, it is often too late because the stock runs up.

DRAM Vs. NAND

In addition to the stock of Micron running up, the stock of Western Digital (WDC) is also running up.  Western Digital is a manufacturer of NAND and not DRAM.  Samsung appears to be focused on DRAM, not NAND.  As a result, if WDC stock continues to run up, there may be a short selling opportunity in WDC stock.  If our system gives a signal to short sell WDC, it will be published in ZYX Short.

Trade Around Position

The system is close to giving a buy signal for a Trade Around position in MU.  A Trade Around position is a technique used by hedge funds and billionaires that can significantly increase your rewards and reduce your risks.  Please see the Trade Management Guidelines to learn how to utilize Trade Around positions.

When appropriate, a signal for an MU Trade Around position will be given in ZYX Buy.

What To Do Now

Those who are holding a very long term core position in MU and have taken partial profits on previous signals may consider continuing to hold.

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Those not in MU may consider waiting for a signal on the Trade Around position and using the buy zone that will be given along with the signal.

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This post was just published on ZYX Buy Change Alert.

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Nigam Arora

Nigam Arora

Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.

Dr. Natasha Arora

Dr. Natasha Arora

Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.

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