2. Micron Technology, Inc. (NASDAQ:MU)
– Number of hedge funds with bullish Micron positions at the end of Q1: 100
– Number of hedge funds with bullish Micron positions at the end of Q2: 79
– Return since June 30th: -11.3%
If anyone thought Micron Technology, Inc. (NASDAQ:MU) had hit rock-bottom during the second quarter, they were wrong. Smart money sentiment wasn’t convinced that it had, as a net 21 funds said adios to the chipmaker’s shares by the end of the quarter. However, the funds in our database did still hold 18.30% of Micron’s shares led by billionaire David Einhorn, who added shares to his holding during the quarter, lifting his stake by 14% to 37.95 million shares. However, in Einhorn’s third quarter letter to investors, he expressed bearish sentiment towards both its short and long-term prospects, revealing that his substantial position had since been reduced by an unspecified amount.
Einhorn’s views on Micron from the Q3 letter:
“Our thesis has been that MU’s primary product, DRAM, has consolidated to three players, who are likely to create more industry profits compared to when DRAM production was highly fragmented. The problem is that structural industry improvement doesn’t make DRAM less cyclical. The large capital requirements force participants to make large investments in anticipation of future demand. If the industry overestimates demand, it still makes sense to operate at full capacity and oversupply ensues. This year, demand came up short, DRAM prices collapsed, and despite our concerns about PC demand, we missed the turn of the cycle. Those PC demand worries led us to sell LAM Research and Marvell Technology at good prices prior to a sell-off in each security and we shorted (and subsequently covered) Best Buy, IBM and Intel. Although all of these moves helped, we underestimated the extent of MU’s exposure to the PC demand shortfall.
MU’s other business is flash memory or NAND. We anticipated a significant recovery in NAND this year that failed to materialize. MU is set to earn far less than we expected, and earnings will remain low until supply and demand come into balance. Two other problems with our thesis have emerged. First, the Chinese have expressed interest in getting into DRAM. Our prior view was that the consolidated industry would not face new entrants. While the Chinese threat is distant, we judge it relevant. Second, MU announced a much more aggressive capital spending plan for NAND than we envisioned. While management believes that the extra investment will generate adequate returns, we are unconvinced. With separate problems clouding both the short-term and long-term, we determined that there is enough risk to the thesis to reduce the position.”
Needless to say, when one of a company’s staunchest supporters, who’s held a large position in the stock for about two years begins to back out of it and expresses a lot of concerns over even its long-term prospects, that’s certainly cause for concern. Billionaire Seth Klarman appears to have anticipated Micron Technology, Inc. (NASDAQ:MU)’s woes sooner than Einhorn, having reduced his own substantial position in the stock by 62% during the fourth quarter of 2014. Since the start of the year Micron has shed over 50% of its value.
Without a doubt the best case for monitoring hedge fund activity can be found in the stock the smart money most dumped during the second quarter. See what it was on the final page.
