Micron lower; BofA worried about pricing, Samsung/Hynix competition


"We disagree with the bullish consensus, as EPS growth is unlikely to be strong once it hits $2," writes BofA/Merrill's Simon Dong-je Woo, reiterating an Underperform on Micron (MU -1.1%).

Micron's huge rally leaves shares trading above BofA's memory up-cycle fair value target. In addition, Woo is worried about weakening chip prices (esp. for NAND flash), SK Hynix's (HXSCL) DRAM fab plans, "greater downside" to DRAM spot prices, and execution risk for new memory process deployments - he considers Micron's 20-30nm process tech inferior to Samsung (SSNLF) and Hynix's.

Earlier this week, Susquehanna downgraded Hynix, arguing Samsung has a technology edge. The firm noted Hynix is still using a 30nm DRAM process, whereas Samsung has made it to 25nm, and says checks suggest its migration to a 16nm NAND process (from a current 20nm process) might be pushed out to 2015.

Micron has forecast 16nm will account for a majority of its 2H NAND output. Samsung has an early lead on rivals in developing 3D NAND flash parts, but the technology is seeing a slow ramp.

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Comments (19)
  • Gnawkz
    , contributor
    Comments (117) | Send Message
     
    Well ... I guess 2014 will be the year where Micron either proves that DRAM is still a very Up/Down market OR it is truly different this time around.

     

    I believe in the latter, the stock trades like a former ...
    28 Mar 2014, 10:48 AM Reply Like
  • thejacadagroup
    , contributor
    Comments (92) | Send Message
     
    1 dollar per quarter earnings on average is clearly likely outcome for 2014... Then times 10 results in: 40 dollar per share is possible as an upside...
    28 Mar 2014, 10:52 AM Reply Like
  • khlim115
    , contributor
    Comments (465) | Send Message
     
    The only thing I agree with is the concern for growth potential once the stock is fully priced for their present earnings. Also B of A earnings of $2.00 per year is GAAP earnings. Last quarter (Q1), MU reported non-GAAP earnings of 0.77. However, the consensus was 0.46 GAAP and MU's actual GAAP was 0.33 (yes, MU actually missed the GAAP earnings expectation last quarter). This difference may explain the diverging views on MU. For me, if the 20d SMA crosses 50d, it would be time to reduce my position as this has not happened for MU in nearly a year. At this level, the SMA 20 is at the 50.
    28 Mar 2014, 11:20 AM Reply Like
  • Gnawkz
    , contributor
    Comments (117) | Send Message
     
    Yes, that is correct & incorrect. One of the big reasons why Micron's GAAP number missed is because of the Rambus lawsuit settlement.

     

    Micron recognized an upfront $233 MM liability for a 7 year license to use Rambus technology in the prior quarter. This amount is equivalent to around $0.19 EPS when added back to the GAAP number (if this lawsuit was still not settled) would it bring up to $0.52, still beating that $0.46 GAAP number provided by analysts.

     

    The other adjustment that will also disappear in the future is the Elpida inventory markup. Everything else is debatable, they could come back again or could not. But the 2 largest items that drove the discrepancy were one time events that will not be occurring again for a long time.

     

    The market was correct to recognized that the $0.77 was much more reflective of Micron's current business prospects rather than the $0.33.
    28 Mar 2014, 11:54 AM Reply Like
  • Philip Marlowe
    , contributor
    Comments (1549) | Send Message
     
    Can you provide any evidence for that 0.46 GAAP consensus? Analysts usually predict non-GAAP numbers. The consensus was for non-GAAP numbers. I have never seen a GAAP consensus be published.

     

    By the way it is completely normal for the GAAP to be below the non-GAAP this past quarter. Remember that during the previous quarter the GAAP numbers were far above the non-GAAP numbers. These variations had to do with the special accounting that had to be done for the Elpida acquisition.
    28 Mar 2014, 12:50 PM Reply Like
  • bitterwind
    , contributor
    Comments (159) | Send Message
     
    and where are the major bulls! commenting into earnings as MU keeps going lower and the SA followers know who they are. Have you abandoned ship too!!
    28 Mar 2014, 11:48 AM Reply Like
  • Thang Nguyen
    , contributor
    Comments (66) | Send Message
     
    Wow wowwww wowwww!!! Hold your horses, dark knights. Simon Woo, the Kim Chi downgraded MU times last year. WORRIED about weakening NAND prices? Are you even in the industry in order to state something like that? Looks like you have been reading some SA articles. You might as well be on EDD because BAK just failed the stress test. If you meant worried about your short position as it approaches earnings then I agree. I had a chance to think a bit while doing number 2 -- even though My knowledge is nothing compared to MU investors here but I believe $1 this earnings is conservative if MU doesn't do any one-time stuff again. The main key for me to believe so is Elpida was just fully included in the last quarter.
    28 Mar 2014, 12:32 PM Reply Like
  • Philip Marlowe
    , contributor
    Comments (1549) | Send Message
     
    Nand prices are weakening because the industry wants to finally make decisive push against hard drives. The industry recognizes that it is beneficial to have slightly lower prices when there is opportunity for high growth, and there is plenty of opportunity for growth when replacing hard drives.

     

    Micron will be able to counter the weakening of nand prices by selling more nand and by selling their nand inside of higher margin SSD products instead of as a commodity.

     

    Furthermore, I doubt nand prices are weakening that much. The asian mobile industry is going gangbusters, so even commodity nand should find price support.
    28 Mar 2014, 12:57 PM Reply Like
  • khlim115
    , contributor
    Comments (465) | Send Message
     
    I got a look at the actual research report by this analyst. Following is the EPS estimate for 2014, 15 and 16 from his report. He is using GAAP EPS. (someone asked me to present proof that the GAAP estimates are being used, so here it is).
    The report is PDF and will not let me directly export, so I had to copy and paste.

     

    Estimates (Aug)
    (US$) 2012A 2013A 2014E 2015E 2016E
    EPS (1.04) 1.13 1.91 1.94 1.95
    GAAP EPS (1.04) 1.13 1.91 1.94 1.95
    EPS Change (YoY) NM NM 69.0% 1.6% 0.5%
    Consensus EPS (Bloomberg) 2.67 2.81 2.54

     

    Bloomberg's EPS are non-GAAP as is the S&P's which is 2.95 for 2014 (Yahoo). The target price depends on which numbers you are using. At the moment some of the SA contributors are estimating that the EPS for 2014 will be close to $4 (non-GAPP) which is what I am hoping for.

     

    Below is an another excerpt from the report. This analyst seems to be betting on PC DRAM prices doing better than mobile.

     

    "Our EPS estimates for FY14-15 are 11%/27% lower than consensus due
    to lower ASP/margin assumptions. FY14E P/E at 11.6x and PBR 2.1x look rich or higher than the historical average. We prefer Inotera (INMFF; C-1-9; NT$23.30) over Micron due to lower P/E, larger exposure to PC DRAM (shortage possible due to competitors’ supply cut) and more drastic financial deleverage (see our report)."

     

    I don't buy his line of reasoning that PC DRAM may end up being more profitable. I am not defending him, but I thought this may help to understand where this guy is coming from. Long.
    29 Mar 2014, 03:54 PM Reply Like
  • thejacadagroup
    , contributor
    Comments (92) | Send Message
     
    So micron must deal with gapp earnings while all other companies are talked about using non-gapp???
    30 Mar 2014, 02:35 AM Reply Like
  • Jaret Wilson
    , contributor
    Comments (1193) | Send Message
     
    No. Nearly all analysts use non-GAAP. If any are using GAAP that's very strange and an anomaly. Just be concerned with non-GAAP which are more predictable, less volatile.
    30 Mar 2014, 02:45 AM Reply Like
  • thejacadagroup
    , contributor
    Comments (92) | Send Message
     
    Amazing that the new plant mentioned by the bk of America person will be online sometime in 2015!!
    30 Mar 2014, 03:23 AM Reply Like
  • thejacadagroup
    , contributor
    Comments (92) | Send Message
     
    Amazing that the new plant mentioned by the bk of America person will be online sometime in 2015!! Also, why is it that most companies analysis is based on non-gapp numbers but Micron is treated differently?????
    30 Mar 2014, 03:23 AM Reply Like
  • Jaret Wilson
    , contributor
    Comments (1193) | Send Message
     
    It's not treated differently, most or all Micron analysts use non-GAAP numbers.

     

    There is no new plant, this was rehashed old news
    30 Mar 2014, 04:00 AM Reply Like
  • thejacadagroup
    , contributor
    Comments (92) | Send Message
     
    Spot prices are different from contract prices
    30 Mar 2014, 03:25 AM Reply Like
  • thejacadagroup
    , contributor
    Comments (92) | Send Message
     
    .80 times 4 is 3.20 times 9 is 28.80... Enough to discredit all the 110,000,000 shorts that think BofA is right!! Not to mention BofA!!
    30 Mar 2014, 05:02 AM Reply Like
  • thejacadagroup
    , contributor
    Comments (92) | Send Message
     
    .80 times 4 is 3.20 times 9 is 28.80... Enough to discredit all the 110,000,000 shorts that think BofA is right!!
    30 Mar 2014, 05:02 AM Reply Like
  • thejacadagroup
    , contributor
    Comments (92) | Send Message
     
    It is all in the numbers.....for Micron each quarter.. If the company makes 80 cents for the next 4 quarters it will lead at 8 times earnings to more than 25 dollars in a share price
    30 Mar 2014, 05:17 AM Reply Like
  • HFI
    , contributor
    Comments (1490) | Send Message
     
    To all the people that think the short sellers are short just to short the stock, I beg you all to rethink.

     

    Convertible arbitrage, for those that have no idea what this is please look it up. In order to make this arbitrage to happen, investors actually have to short the stock. Given that converts outstanding value equal 6 billion, I'm not surprised that 2 billion something is short.

     

    Short covering is most likely not going to happen.
    30 Mar 2014, 05:36 AM Reply Like
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