Micron Vs Western Digital Stock: Which Is Best?

When it comes to chip storage, Western Digital and Micron are two industry leaders. For investors the question is which is best: Micron vs Western Digital stock?

Western Digital Corporation [NASDAQ: WDC], commonly known as WD, offers a broad portfolio of storage solutions across a wide range of markets. The American computer hard disk drive manufacturer and data storage company allows you to create, experience and preserve your digital content across a range of devices.

A leading global data storage brand with an expansive portfolio of technologies, storage devices, systems and solutions for businesses and consumers alike, Western Digital designs, manufactures and sells data technology products, including data storage devices, data center systems and solutions.

The company markets its products primarily under the Western Digital, HGST and SanDisk brands. The company acquired flash memory maker SanDisk in 2016 for $19 billion – its biggest acquisition till date.

HGST stands for Hitachi Global Storage Technologies, which Western Digital acquired for $4.3 billion in 2011. Its devices and solutions are made using rotating magnetic or non-volatile memory storage technologies (NAND).

The company, with a global presence and manufacturing facilities in China, Japan, Malaysia, the Philippines and Thailand, competes with Samsung Electronics Seagate Technology LLC, Toshiba Corporation, and Micron Technology among others.

Western Digital, founded in 1970 by Alvin B. Phillips (a Motorola employee), moved its headquarters from Irvine, California to San Jose, California in April 2017.

Micron Is The Memory Maestro Of Silicon Valley

Micron Technology, Inc. [NASDAQ: MU] manufactures, markets and sells memory and storage solutions worldwide.

The company operates through four segments:

• Compute and Networking Business Unit (CNBU);
• Mobile Business Unit (MBU);
• Storage Business Unit (SBU); and
• Embedded Business Unit (EBU).

Its consumer products, including dynamic random access memory chips (DRAM), static random-access memory chips (SRAMs), non-volatile memory storage technologies (NAND), NOR Flash, semiconductor components and 3D XPoint memory are marketed under the brands Micron, Crucial and Ballistix.

Micron and Intel together created IM Flash Technologies which produces NAND flash memory. One of the largest memory chip makers in the world, Micron, Inc. was founded by Ward D. Parkinson, Joseph L. Parkinson, Dennis Wilson, and Doug Pitman in 1978, and is headquartered in Boise, Idaho.

Is Micron Technology Stock A Buy?

Memory-chip maker Micron Technology [NASDAQ: MU] was cruising smoothly early in the year as investors pinned their hopes on a semiconductor industry recovery from a cyclical downturn. But as luck would have it, the pandemic struck and sent MU stock tumbling.

The company has made a comeback of sorts recently which may cause some investors to ponder if it is the right time to add Micron to their portfolio. We answer to the question whether or not Micron stock is a good investment?

The memory-chip market took a beating in the second half of 2018 as sales of smartphones, personal computers, and servers slowed down significantly. Memory-chips, however, of late, had started to register strong sales owing to favorable market conditions and Micron looked all set to step on the gas, but the pandemic seems to have played a spoilsport.

Micron Financials Are Guiding Higher

Micron Technology released its fiscal third quarter results in June where it beat Wall Street’s estimates and guided higher for the next quarter thanks to strong memory demand and an improvement in average selling prices (ASPs).

The semiconductor manufacturer reported $0.82 earnings per share for the quarter on sales of $5.44 billion, exceeding consensus estimate of $0.71 by $0.11 on sales of $5.31 billion. During the same quarter last year, the business earned $1.05 EPS.

Micron makes two main types of memory chips: Dynamic random-access memory or DRAM and NAND Flash. DRAM generated over two-thirds of Micron’s revenue in its fiscal third quarter whereas NAND flash memory accounted for about one-third of its revenue during the same quarter.

Demand For Micron Products Is Strong

NAND Flash is a type of non-volatile storage technology that does not require a constant supply of power to retain data. A good example would be a mobile phone, with the NAND Flash (or the memory chip as it’s sometimes called) storing pictures, videos and music files, among others. 

DRAM is a type of RAM that stores each bit of data on a separate capacitor. Since DRAM storage capacity is more than that of SRAM and because it is significantly less expensive to manufacture, DRAM is widely used as a computer’s main memory.

On a year-over-year basis, Micron earnings fell 22% while the business’s revenue was up 13.6%. Sales moved into positive territory after languishing in red for five straight quarters though earnings dropped for the sixth quarter in a row.

For its fiscal fourth quarter, Micron provided earnings per share guidance of $0.95-1.15, on sales of $6 billion, compared to the consensus earnings per share estimate of $0.80 revenue estimate of $5.51 billion.

Just as it looked that Micron had a turnaround of sorts in its fortune with an impressive quarterly report, CFO David Zinsner dampened investors’ sentiments by giving a cautious commentary stating that the company’s top-line growth in both, the current quarter and the next, could fall below expectations.

The year-over-year revenue growth forecast of just 5%, is a spoilsport considering that the anticipation was for a double-digit rise.

Analysts, too, seemed to echo his thoughts, warning the memory-chip market could take a lot of heat in the latter half of 2020 from elevated inventories, dwindling enterprise investment in IT, and the U.S. ban on trade with Chinese multinational telecommunications equipment maker Huawei.

However, despite all these factors, experts believe there is still one potential catalyst that could help the storage and memory company fire up its growth and that is widespread use of 5G products.

Micron’s Mobile Cavalcade Continues

In the third quarter of fiscal 2020, Micron’s mobile business unit generated $1.5 billion or 28% of its total revenue, an upswing of 30% from the prior-year period. It was, by far, the best performing segment, playing an important role in Micron’s overall revenue increase of 13%.

Micron credited this stellar growth to a strong recovery made by the Chinese smartphone market which led to a surge in demand for mobile Dynamic Random Access Memory (DRAM) by smartphone manufacturers, including its customers like Xiaomi.

That recovery was primarily driven by the launch of 5G devices, with 50% of all phone sales in China being 5G models. Incredible as it may sound, but more than 60 smartphone models with 5G capabilities were launched in China in the first quarter of 2020, resulting in a corresponding demand for DRAM.

The best news for Micron and other chip makers is that the 5G party has just begun. Data by Strategy Analytics reveals that out of a total of 274.8 million smartphones sold in the first quarter of 2020, 5G capable handsets constituted 24 million or 8.70%.

Fitch Ratings expects this percentage to increase anywhere between 17% to 20% by 2021. That would keep both, Micron and investors, happy as a fast transition to 5G phones will ensure more demand for DRAM and NAND to support higher storage and memory configurations for hi-res images, videos, and intensive gaming.

Is WD Stock A Buy?

Western Digital seems to be living in pretty interesting times. The memory chip maker hit a five-year high in March 2018, and then, in a stunning reversal of fortunes, sank to an eight-year low in December 2018 as falling memory chips prices thanks to lower orders from PC makers and data centers and a supply glut which smashed its revenue as well as earnings growth.

But, with rebounding memory chip prices due to strengthening demand, WD looked in a comeback mode until the coronavirus pandemic torpedoed its momentum. The hard drive maker stocks have been slipping of late but the company has built a stellar reputation for being a fighter. It has been around for a long time enduring numerous tech-industry downturn over the decades by reinventing itself.

Western Digital’s revenue and earnings plummeted in fiscal 2019 owing to two main headwinds: lower demand for its platter-based hard disk drives (HDDs) from PC makers and data centers hurt its HDD business, and cyclically lower memory chip prices thumped its flash memory business — which sells solid-state drives (SSDs) and memory chips.

Western Digital Corp [NASDAQ: WDC] turned in a mixed fourth-quarter report.  The data storage provider reported $1.23 earnings per share (EPS) for the quarter, well above the consensus estimate of $1.01. During the same period last year, the company posted $0.17 earnings per share, which means EPS soared more than 600%.  Revenue climbed 18% to $4.28 billion from the year-ago period, but missed estimates by $40 million.

Western Digital’s headline numbers looked stable, but its fiscal first-quarter guidance left investors astounded. It expects its revenue to decline 3%-8% annually, and to be in the range of $3.7 billion to $3.8 billion. That’s below the analyst forecasts of $4.4 billion and quite contrary to expectations of 8% growth.  The company expects adjusted EPS in the range of 45 cents to 65 cents, an upswing of 32%-91%, versus expectations for of $1.39 or over 280% growth. “As we look to the first half of fiscal 2020, uncertainty remains,” Western Digital Chief Executive David Goeckele said in a conference call with analysts.

That big miss cut short WD’s three consecutive quarters of positive revenue growth and cast aspersions on its cyclical recovery. That, coming on the heels of its decision to withdraw its near-5% dividend in May, did not go down well with investors, which, in turn, has sent its stock price tumbling more than 40% this year.

The move wasn’t entirely unforeseen since its dividend payments worsted its free cash flow and earnings over the past year, but it was surprising, nevertheless, since the data storage solutions provider was still generating more than enough cash to continue with its dividend payment.

However, WD’s five-quarter streak of year-over-year revenue declines stabilized in the second quarter of 2020 as rising demand for flash memory chips uplifted market prices again. 

The following two quarters were also good as the flash memory market passed through a “cyclical trough” and sales of SSDs to PC makers and data centers improved.

All this convinced investors and experts that Western Digital was on the cusp of a turnaround. The optimism, sadly, proved to be short-lived as the pandemic prematurely cut short what little momentum WD had gained, by disrupting supply chain and forcing order postponement.

In the fourth quarter, WD’s HDD revenue was $2.05 billion, a decline of 4%. In sharp contrast, its flash revenue soared 49% to $2.24 billion, lifted by increasing demand for new SSDs for upcoming game consoles.

The numbers offer a ray of hope for WD as they suggest that the company’s surging flash business could compensate to some extent for its disappointing HDD business.

Unfortunately, Western Digital offered disappointing guidance for the first quarter, and no guidance for the full year, though analysts estimate its revenue to fall 6%, though earnings to witness a 12% growth.

That outlook isn’t abysmal, but it could be hard for investors to show more patience given its closest rival Seagate [NASDAQ: STX] has not discontinued with its nearly 6% dividend despite belonging to the same industry and facing the same challenges.

Micron Technology vs Western Digital: Bottom Line

5G could emerge as the prime growth driver for Micron

Micron Technology is a company that specializes in storage and memory. As such, it is natural for the company to show strong enthusiasm for developments taking place on the 5G front.

“We are actually at the heart of 5G, because without memory and storage, those things don’t work,” says Raj Talluri, Micron Technology SVP and general manager for the Mobile Business Unit. 5G smartphone sales in China have been skyrocketing with more than 50% of all handsets sold being 5G models.

What’s keeping Micron highly optimistic is the sheer amount of storage space and memory configurations required by 5G phones. The lowest-end 5G phone comes equipped with not less than 6 gigabytes of memory while higher end 4G phones had between 2 GB to 4 GB memory as standard.

However, the mobile phone market is just the tip of the iceberg. Demand for higher memory and storage will continue to go up, driven by automobiles, AI, and cutting-edge servers, to name a few. 

Wall Street expects declining demand for memory chips in the near term. The reason for it is not hard to decipher as clients, fearing supply-related disruptions due to the pandemic, ordered more chips than were required. Those customers are probably not giving fresh orders, but it could change as soon as their inventory levels normalize.

Nvidia (the company responsible for inventing graphics processing unit, or GPU, in 1999) recently announced that it was partnering with Micron and Samsung for new GeForce RTX 3090, 3080 and 3070 gaming chips.

The new chips will use the memory technology that Micron has been working on since 2006, called GDDR6X, which possesses unmatched data rates to support cutting- gaming innovation and data-hungry applications.

Also, the ban on Huawei chip sales and the subsequent sales erosion reflected in Micron Technology’s fiscal first-quarter guidance are only going to have a short-term limited impact given its strong cash flow and its hopes for future growth.

This, along with the deployment of 5G networks, means the current problems being faced by Micron are more likely to dwindle in the near future, putting it on the track for being one of the top 5G stocks.

Splitting up Flash and Hard Disk Drives (HDD) unit a good move by Western Digital

WD ranks third in the NAND market after Samsung and Kioxia, Toshiba’s former memory chip unit, while it is just behind its closest rival Seagate in the HDD market. Unfortunately, the COVID-19 pandemic and falling sales of its client as well as its data center devices has been giving it a torrid time. The company forecasts its first-quarter revenue to decline 3-8% annually, well below expectations for 8% growth.

However, the company, in order to arrest the slide, recently announced plans to restructure its Flash and Hard Disk Drives (HDD) business into two separate product units.

The company proclaimed each will be led by a dedicated “general manager” to better promote “growth, profitability and agility.” Some experts believe that splitting up Flash from HDD may be a precursor to spinning off one unit or the other in a pseudo IPO, a move that could help investors by driving up the stock price.

More importantly, recent stabilization in dynamic random-access memory spot prices — and the rally expected thereafter; increasing demand in China’s data centre market; spike in demand for PCs owing to stay-at-home directives and the rising use of cloud storage and streaming services augurs well for Western Digital. Analysts, as such, estimate that Western Digital stock could top $60 within a year. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.