Still Going Long And Strong With Micron Technology

Jun.25.14 | About: Micron Technology (MU)


Industry supply and demand continues to favor memory suppliers including Micron heading into FY 2015.

The PC industry revival and wearable devices may spark Micron’s results and drive additional price target increases in FY 2015.

Maintaining my $61 12-month price target for shares of Micron.

Micron Reports Q3 2014 Results

Micron (NASDAQ:MU) reported its Q3 2014 results and "consistent" and "steady" are my initial thoughts. Micron's gross margins remained at 34% quarter over quarter and non-GAAP earnings came in at $0.79 per share versus expectations of $0.70 from the analyst community. On the top line Micron delivered $3.98B in revenue versus expectations of $3.89B. Micron's cash and marketable investments are now up to $4.81B in total. The company has used 83% of its free operating cash flow in 2014 to eliminate the dilution of convertible shares. The overall supply and demand equation is expected to remain favorable, which will continue to lead to increased gross margins over time.

PC and Network Outlook - Turning Bullish Heading into FY 2015

Computer and Network Business comprised 47% of Micron's overall revenue in Q3 2014. The PC market has been in decline for some time but Gartner believes that in 2015 PC shipments will begin to increase, which is a sharp turnaround from the expected 6% decline in 2014. Micron also reported that it saw pent up demand for corporate PC refreshes in the latest quarter as well as the LTE network build-out in China. LTE build-out is just getting started and Micron will reap the benefits. CCS Insight reported that 250 million LTE enabled phones were purchased in 2013; however, the number of LTE enabled mobile phones sold worldwide is expected to reach 1.16B by 2018.

Mobile Outlook - Pricing Due to Supply and Demand Continues to Favor Suppliers Heading into FY 2015

Micron continues to be bullish on mobile NAND and DRAM and expects profitable growth in FY2015. Mobile supply remains constricted and long-term customers are looking to up supply via long-term agreements. Micron has no plans to expand wafer capacity and the company's long-term view on the industry is stable. Mobile is expected to contribute to overall margin expansion for Micron heading into FY2015.

Wearable Devices - May Add Tailwind to Micron's Top and Bottom Line Heading into FY 2015

Digitimes recently reported that it expects a surge in wearable device shipments in Q3 2014 led by Apple's iWatch. Digitimes expects the following companies that have or will launch devices in Q3 - Apple, Samsung, Epson, Sony, Acer, Asustek Computer, Adidas and Qualcomm. Micron also believes the company can add a lot of value when it comes to wearable devices.

Of course, all of these wearable devices need some sort of memory, which is where Micron comes in. We have a large portfolio of solutions that are low power and come in small form factors. I think this will be a space where we can add a lot of value to our customers' creations.


Micron continues to operate in a very favorable macro and micro memory environment. Mobile will continue to be a driving force behind Micron's margin expansion as well as contributing to its top and bottom line growth heading into FY 2015. Mobile supply remains constricted and long-term customers are looking to lock up long-term supply agreements with Micron. The PC market has been a drag on Micron's growth for quite some time, but by 2015 Gartner believes that PC unit shipments will actually increase over 2014 shipments. In addition to the PC marketplace, Micron will continue to reap the benefits of LTE network build-outs, specifically LTE build-outs occurring in China. Micron is also well positioned to benefit from the flood of wearable devices that are expected to hit the marketplace during Q3 2014.

I'm maintaining my $61 price target for Micron that was initiated on April 1, 2014; however, I believe that the resurgence of the PC market in 2015 along with the introduction of wearable devices in Q3 2014 could add additional shareholder value in FY 2015 above and beyond my $61 target.

Additional Disclosure: This report was distributed to paid subscribers of my PTT Research Forensics Newsletter before the market opened on June 24, 2014. The PTT Research team features some of the most regarded research analysts on Wall Street united around a vision of independent, un-compromised, real-time investment research-as-a-service.

Disclosure: The author is long MU. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.