microns vs. Rambus: Are any of the chips a buy right now?

Bill Zettler profile picture

RUNSTUDIO

Overview:

Micron Technology, Inc. (NASDAQ:MU) and Rambus Inc. (NASDAQ-RMBS) are involved in the manufacture of memory chips. Micron actually manufactures and sells the complete chip modules (as shown in the image above), while Rambus manufactures components and licenses IP (Intellectual Property) that are used in the modules themselves. In fact, Micron is one of the largest customers of RMBS.

This is what RMBS specializes in:

Join Rambus at IntelON and see a demo of our DDR5 Register Clock Controller (RCD), Serial Presence Detect (SPD), and Temperature Sensor (TS) that enable new levels of performance in DDR5 memory modules for servers, storage systems and PCs. Font: Yahoo Finance

Looking at its 1-year revenue trends, RMBS has far outperformed MU with a 29% revenue increase versus a much lower 4% for Micron.

frame

looking for alpha

On a longer 3 year basis, RMBS has increased its revenue by 86% compared to Micron’s 49%.

frame

looking for alpha

I have written 39 articles on MU in the last 7+ years, often comparing their perspectives to other chip companies, such as my most recent article: AMD vs. Micron: Which stock is the winner at the end of 2023?

In this article, I will compare the current state of both companies and present an investment recommendation for both.

financial metrics

Although technically in the same memory chip submarket, Micron and Rambus have a big difference in size.

The most notable is the Revenue (Line 2) which shows that Micron has 75 times more revenue than Rambus.

But Rambus does have some advantages, such as a large gross margin advantage (line 4) of 81% to 45% mainly due to Rambus’s high IP sales as a percentage of its total revenue.

Also READ  SCHM: Lackluster mid-cap ETF, IJH looks better (NYSEARCA:SCHM)
frame

Looking for alpha and author

But the margin metrics look different when you compare them to the relative prices of the two stocks in terms of GM (gross margin) percentage of MV (market value) and EV (enterprise value). In that case, MU looks much better with a 23% MV and EV Gross Margin (Lines 6 and 7) compared to RMBS’s rather paltry 9%.

That would indicate that Rambus shares may be overvalued in relative terms.

But if you compare the P/E ratio (line 11) and the FCF price (line 16), both make Rambus look undervalued relative to MU’s current valuation.

However, over the last 5 years, RMBS has consistently had a much higher price/sales ratio likely due to its IP product lines giving it a gross margin advantage. Therefore, RMBS’s price advantage is historically based and can be justified by its wide margins.

frame

looking for alpha

Analyst ratings are high for both MU and RMBS, but not as high for Quants.

If we look at Seeking Alpha plus Wall Street analysts combined, we can see that both stocks are highly recommended with a combined score of 46 buys and only 5 sells.

frame

Looking for alpha and author

But the Quants have called Hold mediocre.

frame

Looking for alpha and author

Rambus sells products and IP to all the major DRAM manufacturers

When it comes to memory products, Micron is second only to Samsung (OTCPK: SSNLF) which, of course, uses tons of memory in its own products. SK Hynix is ​​also in the race for volume.

frame

statist

And guess who Rambus’s main customers are?

We have a high degree of income concentration. Our top five customers for each reporting period represented approximately 56%, 46%, and 45% of our revenues for the years ended December 31, 2021, 2020, and 2019, respectively. By 2021, revenue from Micron, Samsung and SKhynix each represented 10% or more of our total revenue. Source: Rambus 10-K

But Micron also relies on a small number of customers:

In each of the last three years, approximately half of our total revenue has come from our top ten customers. A disruption in our relationship with any of these customers could adversely affect our business. Source: Micron 10-K

Neither company did well in the last recession

If you’re worried, like I am, about a recession looming in the next year or 18 months, knowing how a company fared in the last downturn can give you an investment perspective.

Also READ  Valmont Industries, Inc. 2022 Q3 - Results - Earnings Call Presentation (NYSE: VMI)

December 2007 to June 2009 is the last recognized recessionary period and both Micron (39% down) and Rambus (36% down) performed poorly, which makes a lot of sense as Rambus sales depend on Micron and others. DRAM manufacturers.

So neither company would be a choice if a recession looms.

frame

looking for alpha

Conclusion:

As seen earlier in the Overview section, over the past 1-3 years, Micron’s revenue has decreased and Rambus’ revenue has increased.

The other issue is how cyclical Micron’s business and revenues have been over long periods of time.

For a high-tech comparison, here’s Micron’s 10-year revenue chart versus AMD and it’s easy to see the breadth of MU’s revenue. This is because the memory business is very commodity-like compared to, say, the CPU business. You might also wonder if that last little dip shown by the red arrow on the 10-year chart is the start of a new down cycle.

frame

looking for alpha

The obvious investment question is whether now is the time to buy either of these two memory chip companies considering the state of the world with chip and logistics problems, very high inflation and war in Europe for the first time in decades. Personally, I’m very wary of high-tech stocks like Micron and Rambus.

Micron is a sale and Rambus is a hold.

Leave a Reply

Your email address will not be published. Required fields are marked *