Why Micron Stock Just Dropped Again
Key Points
Chinese DRAM company CXMT just IPO'ed in Shanghai at a $487 billion market cap.
CXMT makes DRAM memory chips -- just like Micron does.
Access to IPO cash makes CXMT a stronger competitor to Micron.
- 10 stocks we like better than Micron Technology ›
Micron (NASDAQ: MU) stock tumbled 5.5% through 1:30 p.m. ET Monday, and it's not hard to guess why:
The Chinese are coming to crash the semiconductor memory chip party.
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Image source: Getty Images.
Gangway for CXMT
Chinese chipmaker CXMT (short for "ChangXin Memory Technologies") held one of the biggest IPOs in recent memory in China this morning, raising $8.6 billion for its war chest and rocketing 466% on its first day of trading to close with a $487 billion market capitalization.
CXMT is one of two Chinese DRAM suppliers that Apple (NASDAQ: AAPL) recently sought permission to buy from, to ensure it has access to enough memory chips for its iPhones. CXMT is capitalizing on this good news -- and on the bad news of the global deficit -- by holding its high-profile IPO today, touting its chips as a solution to the deficit that has driven memory prices sky-high this year.
What this means for Micron
This is a direct threat to Micron's operating profit margin, which had quadrupled over the past year from 20% to 80%, powering a tremendous rise in the company's profits -- and its stock price.
CXMT specializes in DRAM memory, one of two forms of computer memory that Micron also specializes in. Whether CXMT's chips are of as high quality as Micron's may be debatable, but at the right price, they'll certainly still sell. And now that CXMT has $8.6 billion in new cash to work with, it'll be able to increase production to sell more of them. This will eat into Micron's market share. It will also reduce supply pressures in the global market, helping lower prices.
Less market share and lower prices for DRAM chips? This is a direct attack on Micron's business model -- and investors are right to be nervous.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Micron Technology. The Motley Fool has a disclosure policy.
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