MU -.68 to 45.12, some positive commentary from a Keybanc analyst, albeit he considers the stock to be at fair value despite the low valuation -
Micron: DRAM, NAND Trends 'Neutral to Good,' Says Keybanc -- Barron's Blog
(Dow Jones 01/05 20:18:13)
By Tiernan Ray
Trends in the DRAM and NAND flash market are "neutral to positive" for
Micron Technology ( MU), according to a note today from Weston Twigg of
Keybanc, who takes the temperature of pricing and supply for the parts.
Twigg, who has a Sector Weight rating on Micron stock, thinks the shares are
about at "fair value", at 4.9 times what the earnings the company may make
this year.
The neutral to good news is DRAM supply is tight and staying that way, while
NAND is headed for "oversupply," but that will burn itself off and return to
tight conditions later this year, he thinks:
Overall DRAM supply should remain tight until new capacity comes online
later this year, with very little new capacity anticipated in the 1H. Based
on our checks, we expect q/q DRAM pricing to increase in the mid- to
high-single-digit percentage range in the 1Q (the higher end of the range
for PC/server DRAM, the lower end of the range for mobile DRAM). We expect
DRAM pricing to flatten in the 2Q, and to be flat to down modestly in the
2H. DRAM producers are still typically anticipating around 20% bit demand
growth this year, and appear to be planning supply in that range, with
around half of the bit growth coming from node transitions, and half from
new capacity. NAND pricing is widely expected to decline in the 1H, but only
moderately in the 1Q. We continue to expect NAND oversupply in 1H18 as
producers ramp 64-layer 3D NAND into high volume. Based on our checks, we
expect NAND contract pricing to decline slowly in the 1Q, perhaps 3-5% q/q,
but more sharply in the 2Q, perhaps into double-digit territory. For NAND,
we believe the spot market will be a good predictor of contract declines
this year (128Gb TLC NAND was down 2.6% this week), so we should have
frequent indications of supply/demand variations. By 2H18, we expect pricing
declines to moderate or even flatten as supply growth decelerates. Demand is
very price elastic, and as pricing declines this year, we expect rapid
adoption of SSDs, lending risk to rapid cannibalization of the HDD market.
For Micron's competitor Western Digital ( WDC), which he also rates Sector
Weight, there is also an upside benefit from pricing stabilization in NAND,
though the immediate price declines may pressure its margins.
For Seagate Technology ( STX), another Sector Weight, Twigg sees potential
cannibalization of hard drives as something that could become a "significant
headwind" to Seagate, even though the company's expected to get the benefit
of its participation in the buyout of Toshiba's ( TOSBF) NAND factories.
Micron shares ended today down $1.08, or 2%, at $45.80, Western stock rose
52 cents, or 0.6%, to close at $82.69, and Seagate rose 30 cents, or 0.7%,
to $42.94.
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