Micron Tames Bears as Chip Pricing Implies Favorable Future

(Bloomberg) -- Micron Technology Inc.’s third-quarter earnings received a positive reception on Wall Street, as outlooks indicated that the market for memory suppliers looks favorable. With pricing relatively stable, analysts like Mizuho’s Vijay Rakesh say guidance for DRAM and NAND are "much better than initial fears."

Expanding data consumption trends across enterprise and mobile markets, implies that memory chips will see "a stable environment" sooner than later, Micron’s chief executive officer Sanjay Mehrotra previously told Bloomberg. For UBS Securities, trajectory of gross margins "remains the biggest tactical question" going into fiscal year 2019. Micron shares rose as much as 4.9 percent in early trading Thursday.

Micron Tames Bears as Chip Pricing Implies Favorable Future

Here’s what analysts are saying:

Bank of America Merrill Lynch, Simon Woo

(Buy, PT $100 from $85)

Raises Micron on three reasons: solid earnings as upcycle continues into fiscal-year 2019 through 2020; financial deleveraging with revisions to earnings per share due to stronger chip pricing momentum; and well-devised strategies with respect to tech competitiveness.

Third-quarter results "clearly confirmed how Micron’s memory chip business is profitable even with minimal bit growth."

Agrees with management’s bullish view on enterprise solutions, including server DRAM and cloud storage, which should prevent a cyclical downturn.

Cowen, Krish Sankar

(Outpeform, PT $72: (Bloomberg Data))

"Micron’s results and outlook have positive implications for the semicap space as memory demand remains strong, implying potential Samsung related pushouts might be a short term digestion issue."

Even with some mix related upside for DRAM and NAND, the "underlying demand for memory remains strong."

Believes the production of Micron’s 96L products, scheduled for later this year, is in-line with other major NAND suppliers and suggests a recovery in NAND-related wafer fab equipment market "is on the horizon."

Deutsche Bank, Sidney Ho

(Buy, PT $80 from $72)

Results were in-line with Micron’s preannouncement, while guidance was above consensus and Deutsche Bank’s expectations amid "concerns that ASP declines in NAND would lead to more conservative revenue and margins."

Micron executed on its technology roadmap with its ability to optimize product mix towards higher-value and higher-margin products.

The swift response from memory suppliers, especially Samsung, to adjust their capital expenditure plans suggests that "they are more focused on protecting their profitability than gaining share."

BMO, Ambrish Srivastava

(Market perform, PT $63)

Results were in-line, but guidance beat expectations. Srivastava was impressed by DRAM results, but disappointing NAND shipments muddled the results for that product. Strength in DRAM pricing partially benefited NAND results as certain products that contain both are cataloged as NAND revenue.

Despite very favorable market conditions, the semiconductor world is very cyclical and “we believe we are in the later innings of an extended memory cycle, and unless we go deep into extra innings, we are reluctant to chase the stock.”

MKM Partners, Ruben Roy

(Buy, PT $77 from $72)

"Micron continues to take advantage of a favorable supply demand environment by executing well on technology transitions and cost reductions. We continue to believe that Micron and its memory peers are positioned to benefit from continued positive demand trends.”

Roy noted that Micron ended the quarter net cash positive, “which was one quarter earlier than the company had initially targeted.” Despite persistent concerns over the memory cycle, "we continue to view MU shares positively.”

KeyBanc, Weston Twigg

(Overweight, PT $80)
"Micron’s efforts to accelerate its technology road-map and to shift to higher-valued products are paying off,” as earnings and guidance were both "very strong."
As it accelerates its technology efforts to close the gap with Samsung, DRAM is still the main driver, accounting for 71% of revenue, which is the highest KeyBanc could remember. With such a high concentration in one space, delays by competitors in building new DRAM capacity should only further help Micron.

Mizuho, Vijay Rakesh

(Buy, PT $72 from $70)

The outlooks for both DRAM and NAND are strong, with pricing relatively stable, "which would be much better than initial fears.”

Cash flow was strong, and the balance sheet is approaching net cash positive earlier than the company had expected. Micron is still "one of the cheapest global memory suppliers” to buy, given its strong fundamentals

UBS, Timothy Arcuri

(Sell, PT $42)

Strong quarter with solid execution but says 2019 questions remain.

For Micron "2019 has always been the issue and on this front, there was not anything on the call per se to swing the bear or bull case though we do acknowledge that recent Samsung pushouts reduce supply for 2019."

UBS believes the trajectory of gross margins in to fiscal-year 2019 "remains the biggest tactical question as this remains the first order correlation for the stock."

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