Tech companies, including many chip makers, have been one of the main beneficiaries during the coronavirus pandemic amid increased internet usage due to the remote working and online education trend as well as the accelerated transition to cloud solutions. However, at the same time, the semiconductor industry was also hurt by supply-chain disruptions due to the COVID-19 outbreak.
Last month, the Semiconductor Industry Association reported that July global semiconductors sales grew 4.9% Y/Y and 2.1% M/M to $35.2 billion. The association feels that the semiconductor market remained largely resistant to global macroeconomic headwinds through the first 7 months of 2020, but substantial market uncertainty remains for the rest of the year.
We will now use the TipRanks’ Stock Comparison tool to line up Micron and Intel alongside each other to see what the near-term holds for these chip makers.
Micron Technology (MU)
Micron is considered as one of the prominent names in the semiconductor industry. Through its two brands – Micron and Crucial, the company sells high-performance memory and storage technologies, including DRAM (dynamic random access memory), NAND flash memory, 3D XPoint memory, and NOR flash memory. The company derives a significant portion (72% in the most recent quarter) of its revenue from DRAM chips, which are used in PCs, smartphones and other devices.
Micron delivered better-than-anticipated results for the fourth quarter of fiscal 2020 (ended Sept. 3). Revenue rose 24.4% Y/Y to $6.1 billion reflecting strong demand for DRAM in cloud, PC and gaming consoles and robust increase in QLC NAND shipments. Adjusted EPS grew 93% to $1.08.
But, investors were not pleased with the company’s guidance for 1Q of fiscal 2021, which includes revenue of $5.2 billion (± $200 million) and adjusted EPS of $0.47 (± $0.07). The guidance reflects the loss of sales to a key customer – Chinese tech giant Huawei, which accounted for about 10% of Micron’s fiscal 4Q sales. The recent ban on sales to Huawei comes in the wake of growing tensions between the US government and China.
Meanwhile, Micron is positive about improving market conditions in 2021, driven by 5G, cloud and automotive growth. The company continues to strengthen its DRAM product portfolio based on innovative products like GDDR6X, the world’s fastest discrete graphics memory solution, and the 1z nanometer DRAM chips. It said that it is on track to introduce the next-generation 1-alpha node in fiscal 2021.
Keeping in view margin pressure due to excess supply in the industry, Micron is working on its second-generation RD node, for which production will commence in fiscal 2021. To thrive in the competitive NAND market, it is focusing on product innovations and driving cost reductions through increased mix of QLC NAND.
Piper Sandler analyst Harsh Kumar lowered his price target for Micron Technology to $45 from $51 and reiterated a Hold rating following the 4Q results. The analyst stated that Micron appears to be going through “some indigestion” in the near-term due to technology transitions in DRAM, headwinds from Huawei, and lackluster trends in some of its end-markets.
Kumar reduced his earnings estimates for the first half of fiscal 2021 significantly. (See MU stock analysis on TipRanks)
The Street is cautiously optimistic on MU. The Moderate Buy analyst consensus is based on 16 Buys, 8 Holds and 1 Sell. With shares down 12.7% so far this year, the average analyst price target of $60.78 implies upside potential of 29.4% lies ahead.
Intel Corporation (INTC)
Intel, one of the largest players in the semiconductor industry, has been losing ground to rivals like AMD due to lack of innovation and strategic missteps. Notably, the July announcement about the company’s 7-nanometer chip rollout being delayed to at least late 2022 was a major disappointment to its investors. The delay has been helping AMD, which already sells 7-nanometer chips, in furthering strengthening its market position.
Intel is well-known for manufacturing its chips in-house unlike AMD which relies on Taiwan Semiconductor Manufacturing (or TSMC). However, supply chain issues have forced the tech giant to consider outsourcing of chip manufacturing.
Last month, Northland Securities analyst Gus Richard reiterated a Sell rating on the stock with a price target of $48. In a research note to investors, the analyst said that he is starting to see evidence of Intel moving production to TSMC at 5nm for CPU (central processing unit) and/or GPU (graphics processing unit) and that this could result in narrowing the process technology gap between AMD and Intel in the server market by late 2022.
However, in the near term, he is not optimistic about Intel’s prospects given the loss of Huawei and Apple notebook as well as AMD market share gains. (See INTC stock analysis on TipRanks)
Intel’s 2Q revenue increased 19.5% Y/Y to $19.7 billion with data-centric revenue soaring 34% and PC-centric revenue rising 7%. The 2Q adjusted EPS grew 16% to $1.23. Strong demand for computing performance to support cloud-delivered services, a work-at-home and learn-at-home environment and the build-out of 5G networks helped deliver strong 2Q numbers.
For 2020, Intel expects revenue to grow 4% to $75 billion and EPS to rise 3% to $4.85. It anticipates its PC-centric business to be flat to slightly down but predicts a 10% revenue growth in its data-centric businesses on strong cloud demand and increased 5G buildouts.
The Street is on the sidelines when it comes to Intel with a Hold consensus based on 9 Buys, 14 Holds and 9 Sells. Intel stock has fallen 13.5% year-to-date but the average analyst price target of $56.29 indicates upside potential of 8.7% in the months ahead.
Conclusion
Intel has a dividend yield of 2.55% while Micron does not pay any dividends. Recent operational performance, analysts’ expectations and stock upside potential make Micron a better semiconductor pick than Intel for now.
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment
