Micron Technology, Inc. (MU) designs, manufactures, and sells memory and storage products worldwide. The company operates through compute and networking, mobile, storage, and embedded business units. It sells dynamic random access memory chips (DRAMs), static random access memory chips (SRAMs), flash memory, semiconductor components, and memory modules to a variety of end markets, including 5G communications and mobile, automotive, server and networking, and consumer industries.
Qorvo Inc. (QRVO) develops and commercializes technologies and products and radio frequency (RF) solutions for mobile, infrastructure and aerospace/defense applications to international original equipment and design manufacturers worldwide. The company operates through mobile product and infrastructure & defense products segments. Its products are used in wireless and broadband infrastructure, defense, industrial, automotive and Internet of Things.
Owing to rapid digitalization across all sectors over the last year, most technology companies were able to generate significant revenues and expanded their market reach. The benefits of higher bandwidth, higher download speeds, and low latency and error rates offered by 5G technology are now driving tech companies to improve their product portfolios to capitalize on the emerging 5G era.
Despite the delay in the commercial roll-out of next-gen technology caused by the global semiconductor shortage, investors have nonetheless been betting on the industry given its capacity to revolutionize technology. The global 5G technology market is expected to grow at a 73.6% CAGR over the next seven years. Based on these factors, we think MU and QRVO could benefit substantially.
While MU has declined 12% over the past three months, QRVO has climbed marginally. But in terms of their past month’s performance, QRVO is a clear winner with 6.3% gains versus MU’s marginal gains. But which of these stocks is a better pick now? Let’s find out.
Click here to checkout our 5G Industry Report for 2021
Latest Movements
On June 1, 2021, MU introduced new memory and storage products based on its industry-leading 176-layer NAND and 1-Alpha DRAM technology, as well as the industry’s first Universal Flash Storage (UFS) 3.1 solution for automotive applications. Amid the high demand for memory and flash chips in the developing data economy, MU’s new portfolio additions should accelerate data-driven insights and enable new capabilities from the datacenter to the intelligent edge. With power-efficiency improvements for memory enabling longer battery life in consumer devices, MU expects to generate good sales in the near-term.
In a project to improve planetary radar capabilities in identifying and characterizing Near-Earth Objects (NEOs), The National Radio Astronomy Observatory (NRAO) and Raytheon Intelligence & Space (RI&S) have selected QRVO’s Spatium solid state power amplifier (SSPA) technology. Surpassing the performance of traditional radar that lacked the power to target smaller NEOs, QRVO’s Spatium power amplifier technology offers the advantage of higher RF power output and reliability that will provide precision measurements of shape and rotation, and map and track threats from NEOs, thus playing a key role in the next generation of ground-based planetary radar.
Recent Financial Results
MU's revenue for its fiscal second quarter, ended March 4, 2021, increased 30% year-over-year to $6.24 billion. The company’s non-GAAP gross profit increased 46.9% year-over-year to $2.05 billion. Its non-GAAP operating income came in at $1.26 billion, up 131.9% from the prior-year period. MU's non-GAAP net income is reported to be $1.13 billion for the quarter, which represents a 118.2% year-over-year improvement. Its non-GAAP EPS increased 117.8% year-over-year to $0.98. As of March 4, 2021, the company had $6.57 billion in cash, cash equivalents and restricted cash.
For its fiscal fourth quarter ended April 3, 2021, QRVO's revenue increased 36.2% year-over-year to $1.07 billion. The company’s non-GAAP gross profit came in at $564.70 million, up 44.5% from the prior-year period. Its non-GAAP operating income is reported at $357.23 million for the quarter, which represents a 70.2% year-over-year improvement. While its non-GAAP net income increased 70.2% year-over-year to $315.38 million, its non-GAAP EPS increased 74.5% year-over-year to $2.74. The company had $1.40 billion in total cash, cash equivalents and restricted cash as of April 3.
Past and Expected Financial Performance
MU’s revenue and EBITDA declined at CAGRs of 3.1% and 14.6%, respectively, over the past three years. The company’s total assets have increased at a 9.5% CAGR over the past three years.
Analysts expect MU's revenue to increase 31.3% year-over-year in the current quarter (ending August 31, 2021), 26.9% in the current year and 31.8% in the next year. Its EPS is expected to increase 99.6% the current quarter, 97.6% for the current year and 97.6% next year. The stock’s EPS is expected to grow at a 63.7% rate per annum over the next five years.
In comparison, QRVO’s revenue and EBITDA grew at CAGRs of 10.5% and 17.6%, respectively, over the past three years. The company’s total assets have increased at a 4.2% CAGR over the past three years.
Analysts expect QRVO’s revenue to increase 37.1% year-over-year in the current quarter (ending June 30, 2021), 15.3% year-over-year in the current year, and 7% in the next year. Its EPS is expected to increase 63.7% in the current quarter, 17.3% in the current year and 10.4% next year. Analysts expect the stock’s EPS to grow at a 16.2% rate per annum over the next five years.
Profitability
MU’s trailing-12-month revenue is 5.8 times QRVO’s. However, QRVO is more profitable with a 46.9% gross profit margin versus MU’s 30.7%.
Also, QRVO’s ROE, ROA and ROTC values of 16.4%, 8.5% and 9.5%, respectively, compare favorably with MU’s 8.2%, 4.4% and 5%.
Valuation
In terms of non-GAAP trailing-12-month P/E, MU is currently trading at 21.99x, which is 18% higher than QRVO’s 18.64x. QRVO’s 0.84x non-GAAP forward PEG is significantly lower than MU’s 0.89x.
Thus, QRVO is more affordable here.
POWR Ratings
While MU has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, QRVO has an overall B grade, which equates to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
QRVO has a B grade for Growth. This is justified because the company’s 44% year-over-year rise in EBITDA is 197.8% higher than the 14.8% industry average. However, MU has a C grade for Growth.
In terms of Quality, QRVO has been graded an A, which is consistent with its higher-than-industry profit margin. QRVO’s 9.5% trailing-12-month return on total capital is 113.8% higher than the 4.4% industry average. In comparison, MU’s Quality grade of C is in sync with its relatively lower profit margin.
Of 98 stocks in the B-rated Semiconductor & Wireless Chip industry, MU is ranked #32, while QRVO is ranked #21.
Beyond what we’ve stated above, our POWR Ratings system has also rated both MU and QRVO for Value, Momentum, Stability and Sentiment.
Get all MU ratings here. Also, click here to see the additional POWR Ratings for QRVO.
Click here to checkout our Semiconductor Industry Report for 2021
The Winner
Efforts to improve data storage capacity, cybersecurity and build 5G-enabled devices should allow both MU and QRVO to grow. However, based on higher profitability and better financials, QRVO appears to be a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Semiconductor & Wireless Chip industry.
Click here to checkout our 5G Industry Report for 2021
MU shares were trading at $80.92 per share on Thursday afternoon, up $0.43 (+0.53%). Year-to-date, MU has gained 7.64%, versus a 13.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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