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Micron up 5% as analysts react to earnings/guidance; SanDisk up 4.9%

Oct. 02, 2015 1:23 PM ETMicron Technology, Inc. (MU) StockWDC, MUBy: Eric Jhonsa, SA News Editor4 Comments
  • Micron (NASDAQ:MU) remains up strongly after beating FQ4 estimates and issuing soft FQ1 guidance against a backdrop of low expectations. NAND flash rival SanDisk (SNDK) is also rallying.
  • A slew of firms with Micron targets in the $20s or higher have cut them, while reiterating bullish ratings. Credit Suisse's John Pitzer (Outperform, target cut by $9 to $25) thinks the fact Micron is staying profitable during a downcycle trumps near-term negatives. "While we remain concerned with F2Q (Feb) – (1) seasonally weaker pricing, (2) mobile mix (72% of Op Profit) weakens post iPhone 6s builds, and (3) Company specific operational improvements still geared more toward F3Q (May) – we see trough EPS ABOVE break-even ... and SIGNIFICANT Company specific drivers in F3Q – full impact of 20 nm cost downs and Inotera pricing agreement. While fundamentals are not great, trough EPS above break- even would be definitive proof of a structurally better industry."
  • Susquehanna's Mehdi Hosseini (Positive) offers a similar brand of cautious optimism. "Our expectation is for NAND ASP declines to exceed that of DRAM. However, if MU can execute on cost reductions ... we possess line-of-sight to a bottoming of margins in the Nov-Feb timeframe ... we believe the risk/reward profile remains favorable at current levels, as our “worst-case” EPS scenario (~$0.90-$1.00 in annual EPS), combined with a 10x P/E would suggest ~$4-$5 downside risk from current levels, while we view upside to our PT at $7-$8." Deutsche's Sidney Ho (Buy) thinks "potential capex cuts by memory suppliers (esp Samsung) should lead to better supply-demand next year."
  • Nomura's Romit Shah (Neutral): "We continue to see the bottom in Feb-qtr, as we leave our seasonal decline unchanged -5% Q/Q vs. cons. of up slightly. We see stronger leverage in 2HF16 driven by more rationale supply (potentially helped by Samsung) and a more optimized cost structure in DRAM (mainly 20nm crossover) and NAND (TLC, XPoint)."
  • On the earnings call (transcript), president Mark Adams stated mobile made up a low-30s % of DRAM revenue, PCs low-20s, servers low-to-mid 20s, and specialty DRAM (GPUs, autos, networking, etc.) low-20s. Consumer products (cards, USB drives, components) made up ~40% of trade non-volatile memory revenue, mobile low-20s, SSDs mid-teens, and embedded markets (autos, industrial, etc.) also mid-teens.
  • Micron's FQ4 results, guidance/details

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