After starting the week at above $50, Micron Technology (NASDAQ: MU) fell to as low as around $46, only to end the week down 6%.
The 5.7x P/E and 5x forward P/E is not enough to justify the undervaluation view for the memory giant. Is the industry pricing for memory (DDR3/4) and storage (NAND) stable on tight supply and strong demand? The risk of a slowdown in smartphone sales would negate that view.
Samsung (OTC: SSNLF) commented on April 26 that it would choose DRAM profits over market share growth. That signals the Korean conglomerate will not flood the markets with excess supply, leaving only market dynamics as the risk factor for MU investors. In its Q1 conference call, Samsung said:
"And for 2018, at this point, we expect the DRAM market bit growth to be about 20% and our bit growth will also come in similar level. […] Therefore, Solid supply and demand conditions are expected to continue. We will maintain a 'profit first rather than market share' policy while strengthening cost competitiveness through expediting finer process technology migration under 10nm at a proper time."
The "sell in May" seasonality could compound the volatility in MU shares and, for that matter, semiconductor stocks like Applied Materials (NASDAQ: AMAT), Lam Research (NASDAQ: LRCX), and Taiwan Semiconductor (NYSE: TSM). TSM is the least optimistic about the outlook for chip sales, citing slowing high-end smartphone sales.
Investors should ignore the low-valuation in chip stocks and watch for clues of weak smartphone sales.
