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Micron (MU) Lays Out $150B Investment Plans to Boost Chip Output

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Micron Technology (MU - Free Report) on Wednesday announced that it plans to invest more than $150 billion over the next 10 years to boost its memory chip output. Its recently-announced long-term budget also includes investments in research and development activities to meet the growing demand for chips.

The memory chip maker’s announcement came in the wake of the prevalent chip shortage that is hampering productions in the consumer electronics, cars and several other industries. The supply-chain constraint is also driving prices across industries.

Considering the growing demand and to meet expectations for the 2030 era, Micron is planning to increase capacities at its existing plants as well as build new factories in the United States. However, the company warned that a new fabrication plant in the United States is only feasible when government funding and refundable tax credits are made available.

The company noted that manufacturing cost for memory chips in the United States is approximately 35-45% higher than in the low-cost markets. Therefore, government funding and refundable tax credits become crucial for its long-term U.S. manufacturing expansion plan.

Growing Demand for Memory Chips

Micron is the only U.S.-based semiconductor company, which produces both types of key memory chips, i.e. DRAM and NAND. The usages of memory chips have been rapidly growing and now constitute about 30% of the total global semiconductor market, up from about 10% a decade ago.

The demand for memory chips has been growing rapidly, mainly driven by its increasing usage across everything from smartphones to artificial-enabled cloud.

Micron is witnessing a different demand scenario for its memory chips. The pandemic-led global lockdown and social-distancing measures are thwarting demand for smartphone, automotive and consumer electronics.

Moreover, the social-distancing measures have spurred significant chip demand from data-center operators, as organizations are shifting to cloud for the continuation of operations. The work-from-home and online learning wave is stoking demand for cloud storage.

Furthermore, the coronavirus crisis has augmented the usage of online services globally. Therefore, the data-center operators are boosting their cloud-storage capacities to accommodate the demand spike for cloud services.

Memory chips have become one of the most important components of the current-day technology-driven economy. Digitization across industries, adoption of cloud computing, as well as the integration of AI and machine learnings are fueling demand for memory chips.

The accelerated deployment of 5G technology — the next-generation wireless revolution — is likely to propel further growth. Apart from this, Internet of things, autonomous vehicles, AR/VR and wearables are other growth prospects.

Industry-wide Supply Constraint Hurting Micron

Despite the strong demand environment, Micron’s near-term prospects look gloomy as the company predicts that bit shipments for the DRAM and NAND memory chips will decline in first-quarter fiscal 2022 as personal computer manufacturers are adjusting their memory and storage purchases due to the shortage of other components to complete PC assembling.

Furthermore, the memory chip maker is witnessing supply constraints for certain IC components, which is expected to somewhat negatively impact bit shipments in the near term.

Zacks Rank & Key Picks

Micron currently carries a Zacks Rank #5 (Strong Sell), at present.

Some better-ranked stocks in the broader technology sector include Microsoft (MSFT - Free Report) , STMicroelectronics N.V. (STM - Free Report) , and Palo Alto Networks (PANW - Free Report) , all carrying a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Microsoft, STMicroelectronics and Palo Alto Networks is currently pegged at 11.1%, 5%, and 25.7%, respectively.