Everspin Vs. Micron: MRAM Better Than MU On A Few Key Metrics (MRAM) (MU)

Futuristic high-tech computer network concept with artificial intelligence

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These are unprecedented times with inflation at decade highs. There is also uncertainty about demand amid supply chain issues that persist as China tries to curb Covid infection rates.

Moreover, with the United States eager to maintain its superiority for advanced artificial intelligence or AI processors over China and prioritizing the production of manufacturing, the industry is unlikely to develop in the same way as before.

In these circumstances, the aim of this thesis is to show that instead of choosing Micron (NASDAQ:MU) for dip buying, a better strategy would be to choose Everspin Technologies (NASDAQ: MRAM) whose details are shown below, delivered a better one-month price performance.

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Comparison of key metrics (seekingalpha.com)

Chances are you may have never heard of this stock, whose market cap is about 500 times less than Micron’s, but it certainly deserves your attention, not because of its higher revenue growth or gross profit margins, but more because of its MRAM memory technology that a several advantages over the DRAM produced by the memory giant.

I’ll also use some lessons from the 1980s, when there was a paradigm shift in the semiconductor industry, but, first, I’ll explain what MRAM is, which is also Everspin’s ticker.

Everspin’s MRAM advantages over DRAM

First, MRAM which is short for Magnetoresistive Random Access Memory uses the movement (rotation) of electrons to transfer data instead of loading it as is the case for conventional memory or DRAMs produced by Micron.

One of the advantages of MRAM is that it allows data to be processed in parallel on the same chip, which makes it faster while also reducing power consumption. It is also non-volatile memory, which means that the data does not need power or electrical energy to be usable, like traditional hard drives and SSDs. This feature provides more endurance than DRAM memory or NAND flash memory.

In this regard, Everspin, far from a startup, has more than 12 years of experience in producing MRAMs used in data centers and industrial IoT or in the Internet of Things, as shown below.

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MRAM Investor Presentation Slideshow (seekingalpha.com)

However, MRAM, while gaining rapid adoption, is not as popular as Micron’s DRAM (or dynamic random access memory) due to its low resistance which prevents it from benefiting from energy savings in standard electronic circuits. A solution has now been found by researchers at Samsung Electronics (OTCPK:SSNLF), who are addressing the problem by designing a new MRAM matrix chip for AI processing purposes.

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Without going into too much detail, they have demonstrated that the MRAM chip can be used for in-memory computing, whereby the processing is done in the memory network itself. This is different from the standard computer architecture, where data is stored in conventional memory chips such as those produced by Micron and with the computing done in separate processor units such as those produced by Intel (INTC). So this development opens up new application areas in next-generation AI chips, where MRAM goes to the point for challenging functions that have traditionally been done with Micron’s DRAMs.

The limits of Micron’s DRAM and DDR5

However, Micron continues to innovate, and last year the company surpassed its competitors by developing the most advanced DRAM process technology, called 1α (1-alpha). It offers improvement in performance and energy efficiency, however, 1α was more about the manufacturing capability that allows faster production and shipping.

Micron

Micron Products (www.micron.com)

In addition, as presented above, the company has developed its latest generation DDR5 memory modules that offer higher density. This essentially means that you can put four times more memory in the same server or PC than for the previous generation DDR4.

However, as a result of both higher inflation and technological changes, the practice of upgrading hardware after each new software version release may no longer be trusted by suppliers, except during special events such as the holiday season. An example is new optimization functions in Microsoft (MSFT) Windows 11 compared to the previous Windows 10 version that makes it possible to run more applications with the same memory, which implies fewer hardware upgrades.

Back to DDR5, its performance (measured as bandwidth) has also seen an increase of 36%, but there are questions about its latency, which according to an article in PC World has not increased compared to DDR4.

This latency problem results in memory bottlenecks, especially in highly demanding AI applications, as it limits the acceleration of data from the processor to memory. Now to work around this issue, there is the HBM technique, but this is more of a workaround than a permanent solution. Therefore, with new alternatives such as in-memory computing with MRAM now available, DRAM should be replaced by MRAM for the related use cases.

Therefore, in addition to the uncertainty about demand, Micron is facing sister technology-led developments that are likely to make its chips less attractive compared to MRAM.

Compare profitability and ratings

Looking further, Everspin is more immune to the difficulties of the consumer market as its products are used in a wide range of specialized industrial applications as seen below.

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Everspin Customer Categories and IP (seekingalpha.com)

In addition, this is a competitive sector, because in addition to Samsung, others such as Honeywell (HON), Toshiba (OTCPK: TOSYY), and Siemens (OTCPK: SIEGY) have also invested in MRAM. However, some of the most notable advances have come from smaller companies like Everspin, which, as a result, now has an IP portfolio consisting of over 650 patents, with some of the companies using them above.

Now, to maintain its lead, the company has a relatively high R&D budget, which partially explains its EBIT (operating) margins relative to Micron as shown in the table below. On the other hand, their higher gross margins despite not benefiting from a huge revenue base like Micron to spread its fixed costs on, also indicate better production efficiency. For that matter, Everspin has a partnership with US-based Global Foundries (GFS) for manufacturing purposes.

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Comparison of key metrics (seekingalpha.com)

Everspin also has a better return on capital and a better free cash flow margin, but more importantly, since its revenue growth metric is three times that of Micron, it is abnormal that it has a lower exit price to sales multiple of only 1.93 x. Therefore, it should be better valued, and adjusting based on Micron’s P/S of 2.13x, I get a target of $6.68 ((6.07×2.13) / 1.93)). I’m also bullish because Everspin has upside that could help it mitigate the effects of a recession, while Micron has high inventories.

The $6.9 target is much lower than the Wall Street target of $9 but is justified due to uncertainty about the pace at which the Fed will raise interest rates. In this regard, higher rates bring tighter monetary conditions in their allowance and are particularly harmful for tech stocks, because in such economic conditions it becomes more difficult to maintain their higher growth rates compared to the more “value”.

A look at the 1980s

The current economic situation is somewhat analogous to the late 1970s and early 1980s, when Paul Volcker, who was chairman of the Fed at the time, aggressively raised interest rates to tame inflation, resulting in a high of demand has led to destruction. Focusing on the semiconductor industry, after initially rising in 1979 and the first half of 1980, memory prices began to fall rapidly due to overcapacity resulting from industry-wide investment in capacity, in addition to declining demand caused by worldwide recessionary forces. At that time Intel, which was mainly a memory company and suffered a lot, was only able to recover thanks to innovation through the development of the i386 processor.

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Today, it is Everspin’s innovation that is at the forefront of technological change.

As for Micron, it manufactures not only memory for PCs, but also for data centers, smartphones, automotive, and industries. It is also the only US-based supplier of semiconductor memory and storage after Intel sold its memory unit to SK Hynix in 2020. However, it is not as diversified as Samsung which operates in different industry verticals, and if it is a brutal case. in demand, it will be difficult to absorb the shocks.

Notably, Everspin does not compete with Micron, which faces Samsung and SK Hynix for DRAM memory while, in NAND or Flash memory, there are many other competitors. Also, with a market cap of only about 130 million, Everspin does not have the scale to emulate Samsung’s MRAM research, but it can certainly leverage its intellectual property assets.

Continuing on a positive note, the company’s Spin Transfer Torque MRAM (STT-MRAM) is experiencing more demand because it is “doubtful whether DRAM will continue to scale and meet the needs of next-generation systems” such as Big Data and In-Memory Computing for AI. To this end, Everspin’s STT-MRAM business for data center applications grew rapidly and represented 19% of revenues in the third quarter of 2022, or a 23% progression compared to the same period last year.

conclusion

This growth should continue as Everspin becomes its pole position in the MRAM market, which is expected to grow at a CAGR of 32.7% between 2020 and 2027. Recently, it signed a contract with QuickLogic (QUIK) for Defense Ministry and space system requirements.

So this thesis made the case for investing in Everspin based on the superiority of its MRAM. As for Micron, despite its key role for onshore supply chains back on American soil with its $100 billion New York factory, it is better to avoid the dip not only because of the declining demand, but also because of the high inflation and technological evolution, which question. the normal DRAM upgrade cycles.

Ultimately, while we tend to focus on demand and inventories, it is more a combination of factors driven by technology that are triggering paradigm shifts in the semiconductor industry. That said, Everspin doesn’t have Micron’s financial strength and manufacturing prowess, but its MRAM is certainly attractive, and at around $6 the stock is a buy. Adding a note of caution, in the short to medium term tech stocks should be continuously affected by volatility.

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