With Micron's (MU) road to recovery still months ahead, there's room for some foreign semiconductor stocks to take market share.
Shares of Micron are surging on Thursday after a better than expected earnings release and positive commentary from CEO Sanjay Mehrotra.
Some possibly overlooked stocks that have made remarkable runs as a result of Micron on Thursday morning are surprisingly far afield. They're mostly based in South Korea, such as SK Hynix (HXSCL) and Samsung Electronics (SSNLF) .
Part of this could be a result of Micron scaling back in order to control inventory in DRAM and NAND memory, something each producer highlighted as part of their strategy in order to fuel a second half recovery.
Further, the forecast from each company on the recovery in key end markets into 2020 is helping lift all boats.
Less conducive to Micron is its cut back in capex, which could help other producers in South Korea leverage comparative advantages in technology.
"Korean memory makers are already producing NAND on charge trap technology so Micron's transition could help Korean suppliers to improve the cost reduction curve against Micron in 2020," Deutsche Bank analyst Seung Hoon Han said.
While the company is currently more profitable than its peers on the Korean peninsula, that may not hold.
"Micron profitability has overtaken SK Hynix since the fourth quarter of 2018, which we believe was partially explained by the floating gate technology Micron adopted," Han acknowledged. "However, this application has disadvantages when scaling to higher layers and used for mobile applications. As a result, we believe Korean memory makers could show better NAND cost reductions in 2020 as Micron tries to make the transition to the newer technology."
Additionally, while it is in the best interest of all producers to cut the supply glut for the sake of prices, this is not always the way things shake out, as has been seen in numerous industries.
"It's a similar dynamic to oil, if one company is going to throttle back supply to help pricing but the rest are less concerned about pricing and ready to produce as much as they can, market share dynamics are going to shift toward those willing to pump out supply," Action Alerts PLUS research analyst Zev Fima told Real Money. "It's exactly how the U.S. was able to steal so much market share from OPEC+, we pump as much as we can. If the South Korean suppliers are going to supply as much as possible, they'll probably gain some market share, even if they have to undercut others to do so."
Lastly, South Korean producers are permitted the privilege of operating outside of the much-touted trade war. Any additional pressure from this persistent headline risk could pose a problem for the U.S.-based Micron. Much less so for SK Hynix, for example.
At the very least, semiconductor investors shouldn't overlook the Far East.
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