I must confess, I was not aware of the economic "moat" terminology so I went to Investopedia which addresses the term.
investopedia.com
excerpt:
The term economic moat, popularized by Warren Buffett, refers to a business' ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms. Just like a medieval castle, the moat serves to protect those inside the fortress and their riches from outsiders.
Read more: What is an economic moat? investopedia.com
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That is good to know, but according to Mr Abhinav Davuluri of Morningstar, Micron is a no-moat company.
“Thus, we recommend prospective investors to wait for a more attractive entry point, as shares of this no-moat memory supplier have already risen over 115% during the past 12 months."
Reading the Morningstar report more fully this is what the it says:
Economic Moat:
Abhinav Davuluri, Sr. Eq. Analyst, 19 December 2017
We believe Micron does not have an economic moat. Memory and storage chips, even the latest generation (3D NAND), tend to quickly become commoditized in this highly competitive and cyclical space. As a result, transient product differentiation hampers long-term profitability for all parties involved.
Also, the delicate balance between supply and demand remains a formidable concern, with bouts of oversupply crippling margins and times of undersupply leading to overexpansion. We think the consolidation that has taken place in recent years should encourage the remaining players to behave rationally with respect to future capacity additions. However, it only takes one superfluous fabrication plant coming online to push the market into oversupply.
Samsung, which accounts for the lion's share of total memory shipments, including both DRAM and NAND, is the largest player and holds considerable clout among smaller peers such as Micron, Hynix, Toshiba, and Western Digital (SanDisk).
In order to develop more advanced products, these smaller competitors frequently establish joint ventures to gain the required technical knowledge. For example, Intel and Micron have partnered to form IM Flash Technologies, in which the two design, develop, and manufacture NAND flash and share the output in proportion to each party’s investment.
While we think this joint venture combined with Micron’s own intellectual property will allow it to weather the cyclical nature of the memory market, the combination of the aforementioned industry dynamics prevents us from assigning Micron an economic moat.
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