Micron's DRAM, NAND Trends Look Good in 2018, Says MKM

In advance of Micron Technology's (MU) fiscal Q1 report next Tuesday, after market close, MKM Partners's Ruben Roy today reiterates a Buy rating on the shares, and raises his price target two bucks to $54, writing that 2018 should be another strong year for DRAM, and that fears of price declines in NAND flash may be overdone.

With a 15% decline in Micron shares since a peak in November, "the sell-off presents a buying opportunity," writes Roy, "with our expectations for favorable trends in the memory markets to continue into 2018."

Roy is modeling Q1 revenue of $6.31 billion, and EPS of $2.16, slightly below the Street consensus for $6.4 billion and $2.19 per share.

DRAM continues to be bolstered by server and mobile usage:

Our latest supply chain checks indicate positive DRAM ASP trends continued in MU's November quarter driven by robust server demand and improving mobile demand. The server market accounted for 30% of MU's DRAM revenue in the August quarter. Specific to MU, we are modestly increasing our ASP assumptions for DRAM to +5% from +3% in the November quarter and to +3% from flat in the February quarter.

NAND pricing already reflects some bit growth, albeit "conservative," and Micron should end up more profitable in 2018:

We believe that sell-side ASP expectations for NAND have increasingly reflected expectations for material NAND bit growth (~40-50%) in 2018. Western Digital (WDC, Not Rated) recently said that it expects 2017 NAND industry bit growth at the lower end of its longer-term bit growth forecast of 35-45% and for 2018 bit growth to be within the company's longer-term range. Our research indicates that Samsung (005930-KR) will likely be in the 30-40% NAND bit growth range in 2018 as that company moves to 92L production. Net, we think that current NAND ASP expectations for 2018 reflect a conservative initial take on the potential bit growth environment. For MU specifically, we believe that cost improvements in the company's 3D technologies will continue and, consequently, we expect MU 3D NAND to be substantially more profitable relative to the company's planar NAND.

For 2018, Roy raises his estimates to $25.22 billion in revenue and $8.05 per share in earnings, up from a prior $24.27 billion and $7.75.

This is shaping up as a banner week for Micron, with multiple endorsements. Just yesterday, MorganStanley's Joseph Moore pounded the table for the stock, after his colleague Katy Hubertywarned a couple weeks back things could be bad for NAND pricing in 2018.

Micron shares today are up 40 cents, or 0.9%, at $42.45.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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