Micron Plans to Spend $150 Billion to Meet Chip Demand. That’s Not Why the Stock Got Downgraded.
Micron Technology plans to spend billions to build plants, but that’s not why the stock was downgraded. There are concerns about pricing and demand, as well.
Micron (ticker: MU), the only U.S.-based memory chip maker, said Wednesday it will be spending more than $150 billion to build plants and for research and development over the next 10 years. The expansion comes amid a global semiconductor shortage that has up driven prices for goods, including cars, electronics and home appliances.
The company produces DRAM and NAND chips used for storage in personal computers and mobile phones.
“Memory is at the leading edge of semiconductor manufacturing and fuels everything from feature-rich 5G smartphones to the AI-enabled cloud,” said Sanjay Mehrotra, Micron president and chief executive officer, in a press release.
Mizuho Securities analysts, meanwhile, downgraded the stock to Neutral. The company likely will be affected by low supplier inventory, weaker seasonal demand, weaker mobile demand from China, and increased competition from other chip semiconductor makers, wrote analyst Vijay Rakesh.
“While the shares have underperformed, we see near-term pricing and demand headwinds limiting upside,” he said.
Mizuho lowered its price target to $75 from $90.
Micron competes with Samsung Electronics (005930.SE) and Sk Hynix (000660.SE), both based in South Korea. Samsung had an undeniable lead over SK Hynix and Micron earlier this year, capturing 54% of the market revenue share for smartphone DRAM memory chips the first quarter of 2021. Micron had 20% of the market during that same period.
Memory and storage represent about 30% of the $460 billion semiconductor market and will only grow as 5G adoption and artificial intelligence expand usage of memory, Micron said. But producing semiconductors is costly, especially in a competitive market.
While the U.S. has long been a leader in producing and exporting semiconductors, the market has generally shifted overseas. About 75% of global semiconductor manufacturing capacity has concentrated in East Asia as U.S. manufacturing costs increased, according to a Boston Consulting report.
The report found that the cost of owning a semiconductor plant in the U.S. was 30% higher than in Taiwan, South Korea or Singapore, and 37% to 50% higher than in China.
To mitigate the costs and continue expanding in the U.S., Micron is suggesting politicians step up and provide government funding and a refundable investment tax credit. President Joe Biden introduced a plan for $50 billion in chip research earlier this year, but reshoring an industry is a long process requiring billions in capital.
“Sustained government support is essential for Micron to ensure a resilient supply chain and reinforce technology leadership for the long term,” said Manish Bhatia, executive vice president of global operations.
Micron stock was up 2.1% at 11:10 a.m. after being down 1.2% in premarket trading Wednesday.
Write to Sabrina Escobar at [email protected]
