Better Buy: Micron vs. Western Digital
After a computer memory boom in 2017 and 2018, the market went bust in 2019. As is often the case in cyclical commodity industries -- and memory chips are a tech commodity -- manufacturers ramped up capital expenditures to increase production capacity when customers were clamoring for the components, which created an oversupply just before demand fell off a cliff.
There was an element of external bad luck to this bust as well. The U.S.-China trade war began in earnest about a year ago, and it took the tech market a bit by surprise. The demand destruction caused by the economic conflict has been greater than anticipated, exacerbating the downturn in the industry. In fact, the dropoff in global semiconductor sales in 2019 has been the worst since the 2008-09 Great Recession -- even as most developed economies are growing.
And yet, there are signs that the market may be bottoming, or at least nearing a bottom. A brief power outage at Toshiba Memory's main NAND flash factory in June disrupted its production for weeks, reducing supply and helping to slow price declines for the storage chips. Then, a dispute between Japan and South Korea raised concerns that the big Korean memory makers might be cut off from key materials, leading to future supply shocks. These elements lifted spot memory pricing, and have the potential to benefit non-Korean memory-makers such as Western Digital (NASDAQ: WDC) and Micron (NASDAQ: MU).
Source Fool.com
