Micron Technology, Inc. (NASDAQ:MU) is one of my favorite speculative tech plays, but lately I think shares may have gotten a little bit ahead of themselves. In fact, shares have ridden the recent bull market so much that shares have more than doubled over the past eight months. Having said that, I still think that this company has a bright future ahead of it, I’m just not sure that now is the best time to get in.
About Micron
A leading semiconductor manufacturer, Micron Technology, Inc. (NASDAQ:MU) manufactures and markets a variety of memory products, particularly NAND Flash, DRAM, and NOR Flash memory. The company also manufactures solid state drives and other memory technologies for use in all types of electronic devices. The company sells its memory products to customers under the brand name of Lexar Media, which Micron acquired in 2006, which manufactures SD cards, memory sticks, CompactFlash cards, and readers.
Also in 2006, the company co-founded IM Flash Technologies with Intel Corporation (NASDAQ:INTC). IM Flash makes NAND flash memory products that are used in a variety of consumer electronic devices. The venture has been a success, thanks to Micron Technology, Inc. (NASDAQ:MU)’s NAND technology expertise with Intel Corporation (NASDAQ:INTC)’s expertise with Flash memory technology.
A Shaky History
Despite the success of its various product lines and joint ventures, Micron has struggled in terms of profitability over the years. Out of the past 10 years, half have resulted in operating losses for Micron, and shares have been volatile and have struggled to produce gains as a result. In fact, when you add up the company’s earnings for the past decade, it results in a collective loss of $4.84 per share for that time period.
Micron Technology, Inc. (NASDAQ:MU) is projected to report an operating loss of 43 cents per share for the current fiscal year, and then to earn $0.64 and $1.06 in 2014 and 2015, respectively. Now, if the consensus proves to be accurate, this would mean that Micron’s earnings will be growing at a tremendous rate in a couple of years, and shares would most likely command a more premium valuation as a result. However, that is a big IF, and I’m not sure that the recent doubling of the share price is justifiable, given the extreme uncertainty surrounding Micron’s ability to turn a profit. In fact, analyst estimates for the company’s 2014 earnings range from a very optimistic $1.24 per share to a low estimate of just 2 cents.
Alternative Plays
My favorite play on Flash technology is with the aforementioned Intel, which offers the stability that comes with being the undisputed world leader in CPU’s and the world’s largest overall chipmaker. Intel Corporation (NASDAQ:INTC) trades at a very low 12.1 times TTM earnings, and what the company lacks in growth potential, it makes up for with value and stability. Intel pays an excellent dividend yield of over 3.7%, which has been raised like clockwork over the years, including during the crisis years. Additionally, Intel has about $5 billion in net cash (cash minus debt) on its balance sheet, in contrast to Micron Technology, Inc. (NASDAQ:MU).
If you insist on a smaller semiconductor company with growth potential, take a look at NXP Semiconductors NV (NASDAQ:NXPI), a Netherlands-based manufacturer of high performance mixed signal products that are used in a variety of electronic devices. Unlike Micron, NXP Semiconductors NV (NASDAQ:NXPI) has a good track record of producing profits for their shareholders, and is projected to grow its earnings nicely over the next few years. NXP Semiconductors NV (NASDAQ:NXPI) earned $1.70 per share in 2012, and this is projected to reach $3.92 by 2015, which would mean even better growth at that point than Micron Technology, Inc. (NASDAQ:MU).
Conclusion
The semiconductor industry is a challenging one to invest in, due to its cyclicality and the constant pricing pressures put on the companies as new technologies hit the market. As far as Micron Technology, Inc. (NASDAQ:MU) goes, I would not become a buyer until at least some of the gains of the past year are reversed. In the meantime, either of the other two companies mentioned here would make a good alternative, and which one is right for you depends on your particular risk tolerance and yield expectations.
Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Intel Corporation (NASDAQ:INTC) and NXP Semiconductors NV (NASDAQ:NXPI). The Motley Fool owns shares of Intel.
The article Not the Best Play in the Semiconductor Industry originally appeared on Fool.com.
Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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