Micron's (MU) shares have risen because of hope that the U.S./China trade negotiations will be resolved favorably. I am less optimistic.
I had shorted MU at $49.70, and then shorted more on the opening at $49.62.
Here are some reasons why Micron is my Trade of the Week:
-- Last week the SIA reported that September total semiconductor revenues rose to $38.4 billion (+8.3% month over month). That was more than 310 basis points below the average seasonal increase of +11.4% (also month over month). September semiconductor revenues (excluding memory) was +8.8% - well below the seasonal average of +12.2%.
-- September marks a change from the past two consecutive months of above seasonal trends for semiconductor sales (ex memory).
-- Despite the Administration's protestations the outlook for a satisfactory resolution of the China/U.S. trade negotiations remains low.
-- I question the bullish and bottoming semi thesis. Rather, I believe, based on outsized demand from Hisilicon, Crypto and Apple Supply Chain, that supply chain "pulled forward" demand to minimize the impact of additional tariff increases. 2020 EPS estimates for Micron and others seem to be too elevated.
-- DRAM ASPs have now fallen sequentially in 13 of the last 14 months - and are now down 58% from the peak in July, 2018, 15 months ago. This compares to the cycle average of ASPs down 52% over 18 months.
-- NAND ASPs have now fallen sequentially in nine of the last 10 months, though we would note that since April-19, NAND ASPs are down just 6.6%. Now ASPs are down 63% since the peak October, 2017 (23 months ago) compared to the cycle average of down 42.4% over 18 months.
Here are some of my recent columns on Micron and the semiconductor space:
* Chips Ahoy!
(This commentary originally appeared on Real Money Pro on November 5. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)