Semiconductor stock Micron (NASDAQ: MU ) is tough to get a read on. Between the
evolving technology industry and the complex operations of the company itself,
there's a lot at play. Of course, that doesn't scare off investors. Micron
stock regularly is near the top when it comes to volume, with a three-month
average of roughly 30 million MU shares traded daily. But just because everyone
is trading Micron doesn't mean you should especially if you're a long-term
investor. The stock is a risky play best left to the day traders. In terms of
pure semiconductor supplying, Micron is ninth in market share 2.9% compared to
industry leader Intel 's (NASDAQ: INTC ) 15.9%. Not paltry, considering how
many competitors there are, but not dominant. A more important (and muddier)
picture is Micron's legacy business DRAM, or computer memory. The company is
a bigger player at fourth (12.1%), but Micron as well as South Korea-based
Hynix (21.5%) and Japan-based Elpida (12.1%) lost varying levels of ground
against Samsung (PINK: SSNLF ), which gobbled up 45% of the DRAM market as of Q3
2011, reported in December. DRAM prices dropped significantly across 2011, and
Micron's gross margins were subsequently laid to waste. There's at least
some reason to be positive, though Barclays recently upgraded Micron and
brought its target on MU shares up a buck to $9 per share, expecting higher DRAM
prices and PC sales in the second half of this year. However, the stock
performance since 2009 tells you there are serious challenges facing this
company. Shares of Micron are down about 40% from their 2011 peak of almost $12
in February. Micron's prospects look slightly better these days, so some folks
are taking notice. MU is making strides in the NAND memory field, which the
company has expanded to about 50% its business. Hiding out in Micron's most
recent earnings report a mostly gloomy document showing flat DRAM sales and
disappointing EPS was 6% growth in its NAND business. However, even there, it
holds just 11% market share, well behind Samsung and Toshiba. There's just no
getting a good read on Micron's long-term direction. And given the small
market share in its DRAM business and the recent drop in margins, the status quo
isn't very inspiring. Micron's earnings have headed downward for more than a
year. MU has steadily gone from EPS of 15 cents back in the first quarter of
FY11 down to a 19-cent loss in the most recent quarter. Clearly bad. Analysts
estimate a loss of 18 cents in the current quarter. Oh boy. And a loss of 34
cents for the current fiscal quarter. Yikes. Some buy-and-holders might be
enticed by fiscal 2013 numbers. It's popsicles and sunshine, with the company
expected to rocket into the black at 42 cents per share! But fiscal 2013 is a
long time to wait. Even more damning is Micron's valuation. Similar companies
in the sector are trading for an average of 13 times forward earnings. Even
banking on that long-term forecast which is a sketchy proposition on Wall
Street you're looking at shares of MU trading around $5.46. Today's value
is above $7. Even if you grant Micron a charitable P/E of 20, you only squeak
out an 8% gain. With no dividend. That last point is especially bothersome. On
what's essentially a gamble at this point, there's no supporting income
while you wait for the roulette wheel to stop spinning. Micron might very well
eventually reward you in the future with tangible gains, and could prove these
forecasts wrong with tremendous growth nobody saw coming. But you can say that
about plenty of stocks. In the meantime, you'd be better off throwing your
money at something slightly less risky with more upside. Kyle Woodley is the
Assistant Editor of InvestorPlace.com. As of this writing, he did not hold a
position in any of the aforementioned securities.
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