Shares of Micron Technology (MU 7.60%) were rallying on Wednesday, up 6.7% at 11:14 a.m. ET.
As one of the top three DRAM producers and one of the top six NAND flash producers supplying the world, Micron’s day-to-day movements can be shaped by macroeconomic and geopolitical events. On Wednesday, it looks like news out of China is the catalyst for today’s big move.
China is a big market for memory sales and has played a key role in past memory booms and busts. This was especially true last year, as nationwide “zero-COVID” shutdowns caused demand for memory to plummet, driving Micron’s stock down nearly 50% last year.
However, China also harbors ambitions to develop its own chip industry, since it is such a big consumer of memory and other logic chips. Over the past decade, the government has spent billions in an attempt to develop or steal crucial chipmaking technology.
Some efforts have not been so successful. In 2020, engineers in Taiwan United Microelectronics were convicted of stealing Micron’s DRAM research technology on behalf of Chinese state-owned Fujian Jinhua Integrated Circuit Co.
However, some state-subsidized Chinese companies have succeeded, such as Yangtze Memory Technologies, which had recently developed high performance NAND flash chips. In fact, Apple had even decided to use YMTC NAND in next year’s iPhone, before October US sanctions against YMTC and political pressure caused the iPhone maker to reverse that decision. Additionally, recent US sanctions on key semiconductor equipment have threatened YMTC’s cutting-edge ambitions and even its entire memory chip manufacturing unit.
Today, Bloomberg reported that the Chinese government may throw in the towel on this costly semiconductor subsidy program. It seems that although there has been widespread agreement to invest in local chips, the country’s current financial constraints and sanctions are causing many high-level officials to no longer support expensive investments that have yet to yield concrete results. Instead, officials are looking for alternatives to reduce input costs for the country’s chipmakers.
If China actually gives up on its chipmaking ambitions, it’s a victory for American chipmakers like Micron who may have had to compete with future subsidized Chinese giants. However, this is probably a slight inconvenience for chipmaking equipment manufacturers selling in China.
Today’s rise was certainly good news for Micron shareholders, as the memory market is in its worst bear market since 2008. While 2021 has seen many chips in short supply, it has never been the case with memory chips, which have now oversupplied the market. In its recent earnings call, Micron announced major capital cuts this year and next, as well as plans to lay off 10% of its workforce through next year.
However, investing in the highly cyclical memory industry is often counter-intuitive, with the market generally looking far ahead. With memory prices deteriorating over the past three quarters, and with the stock having been sold so hard and trading just above its book value, Micron could find a bottom.
At least one analyst thinks the sector is bottoming out. Today, analysts at Japanese investment bank Daiwa said in a note that they expect Micron shares to rise 30% this year as the analyst sees the memory sector forming a price floor this trimester. Generally, it has been a good time to invest in Micron.
While it’s too early to tell exactly how long the memory bear market will last or if the stock is actually bottoming around $50 per share, at these price levels additional positive news may result. big moves up, as we see today.
Billy Duberstein has positions in Apple and Micron Technology and has the following options: January 2023 $160 short calls on Micron Technology, January 2023 $210 short calls on Apple, and January $40 short calls 2023 on Micron Technology. Its clients may hold shares of the companies mentioned. The Motley Fool holds positions and recommends Apple. The Motley Fool recommends the following options: long calls $120 in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.