shares jumped for a second day Friday, after one its memory plants halted production early Eastern time Thursday for a few hours, causing a dayslong production halt.
Memory is a weird business.
The Micron (ticker: MU) plant is located in Taiwan, and the stock got a lift because it is responsible for nearly 10% of global dynamic random access memory production. Less DRAM available typically means higher prices, fatter profit margins, and potentially greater revenue—very basic supply and demand. Micron stock got punished in August because executives said there was too much memory and not enough buyers.
Memory is a commodity, similar to oil and gas, and the companies that produce it live and die on its pricing.
Hence, even though Micron’s plant broke on Thursday, the stock is up 5% to $73.56 Friday. Its rivals advanced too:
gained 3.1%, and Samsung Electronics rose 2.6% in overnight trading in South Korea.
(WDC) is up 5.8% to $51.30, though it makes flash storage, which should not be affected by DRAM prices.
It’s ironic that a production problem would benefit Micron stock, but that is the memory business.
It isn’t clear how badly that hours or days of lost production will hurt Micron. In an email, Micron spokeswoman said the facility in Taiwan would return to normal production within the next few days.
Citi Research analyst Christopher Danely said that his team elected not to alter its financial models for the stock because the power outage was short, and the reduced supply may result in higher prices—and thus a boost to revenue and profit.
Danely rates Micron a sell and has set a target price of $35. Danely doesn’t like the stock because it is trading at its highest level since the dot-com boom, which is roughly three times estimated sales.
Danely estimates that Taoyuan, Taiwan plant represents 9% of global DRAM production and about 30% of the company’s overall memory production capacity.
Shares of Micron have advanced 37% this year, with most of the gains arriving in the past six months as speculation about a dwindling supply of memory continues to mount. The PHLX semiconductor index has gained 50% in 2020.
Micron issued fiscal first-quarter guidance on Tuesday.
Write to Max A. Cherney at [email protected]