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Here's Why Micron Will Benefit From Higher Mobile Shipments
- For fiscal year 2014 (ended August), Micron reported record revenue of $16.4 billion, record net income of over $3 billion and record free cash flow of $2.6 billion.
- Being one of the biggest players in the DRAM and NAND markets places Micron at a distinct advantage in the mobile segment in the long run.
- Our price estimate of $32.40 for Micron is just slightly below the current market price.
- Strong rebound from October sell-off a very bullish sign for the stock.
- Shares just reached a new 52-week high, but more upside potential remains.
- Despite a massive run over the last two years, shares of Micron are still undervalued.
- My regular readers know that I have been a big bull on Micron since the stock slumped recently in a overreaction to possible new capacity additions to its sector.
- That patience is starting to be rewarded as the shares look like they are breaking out to the upside from a recent trading range.
- Why I believe this cheap tech stock has substantial gains ahead in the months ahead is profiled below.
- Micron Technology controls 23% of the DRAM industry.
- The company should follow in the footsteps of other tech players and initiate a dividend.
- Micron Technology appears cheap with a P/E ratio of just 13.
- Micron has been a consistent performer and met expectations in the past quarters. However, the threat of Samsung's capacity increase looms over its future.
- Though the intention behind increasing capacity is not clear, Micron investors should expect a volatile trajectory in coming quarters because of sharp reactions to any announcement by Samsung.
- In the NAND flash market as well, Micron is currently a player with limited potential. Therefore, the muscle to back up for any fall in DRAM revenues is weak.
- Micron is a fundamentally strong company and with its $1 billion buyback it is returning value. However, its phenomenal bull run is at risk now.
- Micron (MU) came in with adjusted non-GAAP EPS for 2014 at $3.28.
- Samsung (SSNLF) has announced construction of a new plant costing about $17.5 billion.
- Demand continues to exceed supply by an enormous amount.
- My projections and price targets have been adjusted to reflect these and other new inputs.
Are Additional Convertible Note Pay-Downs On The Horizon For Micron?
- Further upside could come from another round of convertible note restructuring as net dilution remains around 63M shares at $33 per share.
- The $1B share repurchase could add $0.10 to EPS, based on the average share price over the last 6 months.
- We raise our 12-month price target to $40 (previously $39).
- Micron Technology released its 10K and announced a $1 billion stock buyback on October 27.
- Value players and significant holders Seth Klarman and David Einhorn must be scratching their heads at a buyback of a non-dividend paying stock, while interest bearing convertibles remain outstanding.
- This share buyback is a first for Micron and is a significant sign of vigorous health in the underlying business and markets.
- This must be the beginning of the end of the disastrous convertible financings. It must be the end of the beginning of stock buybacks and dividends certain to follow.
- Micron has a return on equity and total assets that beats its competitors.
- Micron is showing impressive three-year annual revenue growth, and has been padding its margins in recent years.
- Micron is carving out a niche for itself by making specialized chips.
Micron Gives Investors More Reasons To Buy Its Cheap Shares
- Micron announced it is initiating a $1 billion stock repurchase program and that it will also retire nearly $400 million in convertible debt.
- This would retire about 4% of the company's outstanding float at current prices.
- More importantly, Micron's announcement is just one more reason to buy this cheap stock that is already selling at a deep discount to the overall market.
Micron Stock Forecast: Why The Algorithm Still Forecasts A Bullish Signal For Micron Stock.
- Micron Displays Recent Positive Trends with the acquisition of Elpida paying off.
- The company sits firmly as a top three DRAM and DRAM mobile industry player.
- Turbulent movement for Micron stock in recent weeks was successfully predicted.
- I Know First algorithm future forecasts bullish signal For Micron stock.
- Micron Technology reported revenues at $4.32 billion for the quarter; 6%, higher relative to the third quarter of FY2014 and 49% higher than those compared to Q4 2013.
- Revenues have experienced growth of 49% year on year. However, the company's earnings have declined and registered a negative 93% year on year negative growth.
- The company is continuously looking to expand market share: the acquisition of Elpida and the launch of an SSD product into a growing SSD market are two examples.
- The 52 week range for the shares of Micron Technology is $16.30-$34.85. The 1 year target estimate for the share is set at $40.42.
- It appears the sell-off in the chip sector last week based on lowered guidance from Microchip Technology was an overreaction from investors as chip stocks have reported good results.
- Micron Technology which sold off along with the sector looks like an attractive buying opportunity and not a value trap.
- The shares are cheap, concerns around DRAM pricing are overblown and the company is starting to pick up increasing positive analyst commentary.
DRAM Contract Prices Increase In October Despite New Capacity Announcements: Good For Micron
- DRAMeXchange announced the settlement of October DRAM contracts, up 2.3% from September.
- Apple’s DRAM demand is expected to reach 25% of the total DRAM market in 2015.
- Micron is well positioned to take advantage of the continuing strength in the DRAM market.
- The market has seen a big increase in volatility and some big sell-offs in myriad sectors offering some good entry points for patient investors who have cash to employ.
- One stock that seems to be unfairly punished is Micron and I added some shares in the deep early pullback in trading this morning.
- The stock has picked up numerous positive comments from analysts recently and the equity is dirt cheap at these levels. The shares are too attractive to not pick up here.
Samsung's Chip Expansion Antagonistic For Micron? Wall Street, 'The Crowd' At Odds
- Wall Street and certain members of the crowd are at odds over Samsung's intentions for its new $15B chip plant.
- Analysts believe Samsung is gearing up to supply explosive demand in memory, in particular, demand for the 2015 iPhone.
- Certain crowd members believe Samsung could attempt to steal share in semiconductors to offset losses in mobile phones. I am riding with the crowd.
- Barron's thinks Micron could reach $50 per share.
- Samsung's DRAM supply expansion and the end of quantitative easing will keep Micron from reaching $50 per share.
- Longs who think otherwise are in denial. I rate the stock a hold.
Micron Should Be Worried By Samsung's Plans For New $14.7B Chip Plant
- Samsung recently announced it was investing in a new $14.7 billion chip manufacturing plant.
- As its smartphone business gets hit by Apple and low-end manufacturers in China, Samsung is making a larger bet on semiconductors.
- Barron's recently placed a $50 price target on Micron due to expected growth in computer memory.
- Samsung's expansion cannot be good for semiconductor prices or Micron's business prospects. I rate Micron a hold.
Mon, Nov. 24, 12:26 PM
- Citing stronger-than-expected DRAM demand, a $1B buyback, the Inotera JV's Q3 results, and a weak yen, Goldman's James Covello has hiked his Micron (MU +1.8%) target by $3 to $32, albeit while reiterating a Neutral.
- SanDisk (SNDK +1.9%), which receives a favorable mention in Covello's note, is also outperforming. As is chip equipment maker Lam Research (LRCX +2.8%), which has considerable DRAM/NAND exposure and has seen its target hiked by $6 to $91. The Nasdaq is up 0.7%.
- Covello: "We are now modeling about 1% DRAM undersupply in 2015 (from balanced prior) ... Our new content estimates for phones, tablets and servers are now all modestly above third party forecasts to better reflect this."
- Nonetheless, Covello remains more partial to SanDisk, due to a belief the DRAM industry's EBIT margins (among the highest in the chip industry) are unsustainable. "We expect excess returns to continue to attract supply (creating upside risk to our 2015 base case supply estimate of 25% yoy) ... DRAM capex is up about 40% yoy in 2014E and tracking higher in 2015E." Bulls are counting on industry consolidation to keep a lid on supply growth.
Tue, Nov. 18, 9:16 AM
Mon, Nov. 17, 10:25 AM
- David Einhorn's Greenlight Capital discloses it owned 30.5M Micron (MU -1.4%) shares at the end of Q3, down from 40.3M at the end of Q2. (13F filing)
- Likewise, Einhorn's stake in Marvell (MRVL -1.8%) fell to 26.4M shares from 39.6M at the end of Q2.
- Micron has had a nice run since Einhorn first disclosed a position a year ago. Einhorn has been long Marvell since 2011.
Fri, Oct. 31, 11:31 AM
- Three weeks after providing a calendar Q3 warning that triggered a massive chip stock rout, Microchip (MCHP +7.3%) has provided Q4 guidance that's in-line with lowered estimates. The microcontroller vendor, which has often seen trends emerge ahead of peers, also said it saw most of its inventory correction in Q3, and expects Q4 sales to be just "slightly below typical seasonal levels."
- Chip stocks are up strongly (SOXX +4%) on a day the Nasdaq is up 1.4%. Since Microchip's warning, a slew of analog chipmakers and microcontroller firms (e.g. Atmel, Freescale, STMicro, Intersil, Linear) have offered light Q4 guidance, and other firms have reported seeing high-end Android weakness (e.g. Synaptics, Cirrus Logic, Amkor).
- On the other hand, several mobile chipmakers (Skyworks, RF Micro, TriQuint, Silicon Motion), some of which have decent iPhone exposure, have provided strong results and/or guidance. Other chipmakers, such as Broadcom, Texas Instruments, and Xilinx, have rallied after delivering in-line guidance.
- Susquehanna's Chris Caso: "By now, we think it’s clear that the weakness MCHP saw in September is not company specific ... The question now is if the full extent of the weakness has been dialed into estimates. If it has, then this would be among the shortest and mildest downturns in many years."
- Notable gainers: SNDK +3.9%. MU +4.1%. AMAT +3.9%. TXN +4.7%. NXPI +3.9%. NVDA +3.5%. MXIM +4.7%. LLTC +5.1%. FCS +9.6%. FSL +8.8%. ADI +6.5%. TQNT +6.8%. RFMD +6.5%. ATML +5.9%. AVGO +5.1%. MRVL +4.7%. AMCC +8.9%. BRCM +3.6%. TSM +4.4%. ARMH +3.3%.
- Intel (INTC +3.5%) has recovered most of the losses it saw yesterday due to Intesil's (ISIL +3.3%) results and guidance, and related comments about a PC chip inventory correction.
- Chip ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG
Mon, Oct. 27, 8:17 AM
- "Our business continues to generate strong operating cash flows, enabling us to invest in our strategic growth initiatives while also returning capital to investors," says CFO Ron Foster, also noting the company in FQ1 laid out $389M to eliminate its 2031B convertible notes and their associated dilution.
- At Friday's closing price of $31.06, $1B in buybacks would eliminate 3% of the float.
- Source: Press Release
- MU +2.6% premarket
Mon, Oct. 20, 9:37 AM
- Pac Crest: "We are upgrading Micron (MU +1%) to 'Outperform' as our recent checks suggest DRAM pricing remains strong. Discussions with Samsung and Hynix suggest that DRAM wafer capacity will remain relatively flat at both companies."
- The firm also expects a balanced supply/demand environment for both DRAM and NAND in 2015. Its target is $37.
- JPMorgan upgraded last Wednesday. Both ratings hikes comes a month after Micron forecast a low-single digit DRAM ASP increase for its November quarter.
- Micron had fallen more than once on concerns about Samsung's DRAM expansion plans; Samsung tried to allay those fears last week.
Thu, Oct. 16, 6:16 PM
- SanDisk (NASDAQ:SNDK) guided on its Q3 CC for Q4 revenue of $1.8B-$1.85B, below a $1.88B consensus. In addition, gross margin (believed to be pressured by Apple sales) is expected to be in a 47%-49% range. GM was at 49% in Q3, at the high end of a 47%-49% guidance range.
- $467M was spent on buybacks in Q3, helping EPS soundly beat estimates in spite of a slight revenue miss. R&D spend rose 18% Y/Y to $201.8M, and sales/marketing spend 46% to $97.6M. Both spending figures were boosted by the July closing of the Fusion-io deal.
- NAND rival Micron (NASDAQ:MU) is off slightly. Micron received 27% of its August quarter revenue from NAND, and 68% from DRAM.
- Q2 results, PR
Wed, Oct. 15, 8:54 AM
- JPMorgan upgrades Micron (NASDAQ:MU) to Outweight from Neutral, saying it should benefit from industry consolidation and strong demand in memory markets.
- Near-term server and PC upgrade cycle should improve, and mobile and gaming should drive long-term demand for NAND and DRAM.
- Price target $36. Shares -0.9% premarket to $27.14.
Tue, Oct. 14, 6:07 PM
- Intel's (NASDAQ:INTC) Data Center Group saw broad-based strength in Q3, CEO Brian Krzanich noted on the CC. Enterprise sales rose 11%, networking 16%, HPC 22% (good for MLNX), and cloud 34%.
- He added Intel's new Grantley Xeon CPUs are seeing strong uptake, and that the chip giant now has 35 custom Xeon SKUs for various clients. Facebook, eBay, Microsoft, and other Web giants have been avid buyers of custom Intel server CPUs.
- 15M tablet CPUs were shipped in Q3; Intel still expects 40M in 2014. The company promises a "substantial improvement" in mobile chip profitability next year as contra revenue payments drop, but doesn't expect the segment to turn profitable.
- Aside from a stabilizing market, Intel thinks PC division sales benefited from share gains (no doubt against AMD) and higher inventories (they were depressed a year ago). A couple of analysts pressed Intel on inventories; the company insists customers have an "appropriate amount." A mix shift towards Bay Trail Atom CPUs pressured ASPs.
- On CNBC (video), CFO Stacy Smith noted developed markets are still faring better than emerging markets, and argued Microchip (responsible for the warning heard round the chip world) "[plays] in different segments." Linear Technology, which has more customer overlap with Microchip, just missed estimates and issued light guidance.
- INTC +2.7% AH. AMD +1.2%. MU +1.8%.
- Q3 results, details.
Tue, Oct. 14, 3:31 PM
- Global growth, foreign-exchange, oil, and small caps are the subject of every client inquiry, says David Kostin. His team's recommendation: Buy "American exceptionalism."
- In Kostin's view, U.S. economy and corporate fundamentals are still strong, with economic growth expected by Goldman economists to be 3.2% next year, the fastest expansion since 2005. Europe is expected to grow just 1%.
- What his team likes are those stocks of companies which have a high proportion of domestic sales, plus sectors like Consumer Staples (XLP -0.1%) and Discretionary (XLY +0.7%) which stand to benefit from lower oil prices (plunging again today).
- As for small caps (IWM +0.9%), Kostin is wary, noting downward earnings revisions have boosted small cap P/E ratios even as prices have declined.
- The list of S&P 500 names capturing two or more of Kostin's themes: GT, GM, PCLN, AMZN, CMCSA, LOW, DG, TSN, ADM, CVS, AVP, WAG, PXD, HAL, JPM, BAC, SCHW, PNC, MS, C, GNW, LNC, MET, THC, AET, UNH, ESRX, HUM, WLP, BIIB, GILD, DAL, CMI, FLR, CRM, JBL, MA, FB, MU, FSLR, VMC, MON, T.
Tue, Oct. 14, 12:35 PM
- Samsung Electronics (OTC:SSNLF) CEO Kwon Oh-hyun: "We'll have to wait and see how things will go next year, but there definitely will not be any game of chicken."
- Micron (MU +2.6%), SanDisk (SNDK +2.3%), and SK Hynix (OTC:HXSCL) must be happy to hear that. Micron and Hynix sold off in late July after Samsung hiked its 2014 DRAM production forecast, and all 3 names sold off last week after Samsung announced plans to spend $14.7B on a new chip fab.
- Cowen's Tim Arcuri recently downplayed concerns about the fab's impact on Micron. "We don’t put a ton of stock in this announcement as we question when – or even whether – this fab will ultimately be built, and we also question the market’s assumption that this would be DRAM."
- Bernstein pounded the table yesterday for Micron, highlighting a valuation of ~6x 2015E EPS and arguing fears about its exposure to a chip inventory correction (following Microchip's warning) are overblown. "The memory cycle has been more supply driven rather than demand driven ... if there is any short-term demand weakness memory makers can just decide to hold on to inventory as opposed to selling at a suboptimal price."
- Micron and SanDisk are both faring well on a strong day for tech.
Fri, Oct. 10, 9:59 AM
- Microchip's (MCHP -12.5%) calendar Q3 warning, which was accompanied by a declaration that it believes "another industry correction has begun and that this correction will be seen more broadly across the industry in the near future," is taking a heavy toll on chip stocks (SOXX -5.5%).
- Intel (INTC -4.2%) and many other chipmakers have joined the several firms that sold off AH yesterday in going in the same direction as Microchip: MU -5.8%. FSL -8.5%. BRCM -3.6%. SWKS -7.5%. RFMD -6.2%. XLNX -4.9%. MXIM -5%. AMBA -5.5%. IDTI -6.7%. CAVM -7.4%. AVGO -10.2%. SMTC -4.3%. SYNA -4.1%. POWI -6.9%.
- Chip equipment makers are also getting hit: AMAT -3.5%. KLAC -3.3%. LRCX -2.3%. UTEK -2.5%. KLIC -2%.
- As Microchip noted in yesterday's warning, the company's very diversified customer base, together with its recognition of distributor revenue on a customer sell-through basis rather than a distributor sell-in basis, often allow it to see industry changes before peers.
- The microcontroller vendor added its warning was driven by a September decline in sales to Chinese clients, and observed it has typically "returned to sequential revenue growth after two quarters" during past downturns.
- Chip stocks have had a good run over the last 12 months, aided by healthy mobile demand and the industry's consolidation wave.
Wed, Oct. 8, 5:09 PM
- IDC estimates global PC shipments were down 1.7% Y/Y in Q3 to 78.5M, better than an expected 4.1%. The decline is even with Q2's rate, and better than Q1's 4.4% and Q4 2013's 5.6%. Gartner estimates shipments fell only 0.5%.
- Developed markets continue faring better than emerging markets still getting hit by tablet cannibalization. IDC thinks U.S. shipments rose 4.3%, a bit slower than Q2's 6.9% growth. EMEA grew, while Asia-Pac (exc. Japan) declined. Japanese growth remained "deeply negative."
- The corporate migration from Windows XP to Windows 7 (following MSFT's ending of XP support) is still providing a lift, as is a soft tablet market. However, IDC cautions demand for "large commercial refreshes" remains low.
- Notably, Apple (NASDAQ:AAPL) finally managed to crack IDC's list of the top-5 global vendors: With the help of a strong U.S. market and Mac price cuts, Apple's unit share rose an estimated 60 bps to 6.3%. Revenue share is likely above 10%, given Apple's calendar Q2 Mac ASP was $1,255. U.S. unit share was at 13%.
- The four companies ahead of Apple all grew their shares as well, gaining ground against vendors with less scale: Lenovo (OTCPK:LNVGY) was at 20% (+230 bps), H-P (NYSE:HPQ) at 18.8% (+130 bps), Dell at 13.3% (+140 bps), and Acer (OTC:ACEIY) at 8.4% (+100 bps).
- Intel's (NASDAQ:INTC) Oct. 14 Q3 report should provide additional color on PC demand going into the holiday season.
- Related tickers: AMD, NVDA, MU, STX, WDC, HTCH
Mon, Oct. 6, 9:25 AM
- Micron (NASDAQ:MU) is under pressure after Samsung announced it's spending $14.7B to build a giant new chip plant. Construction will start in 1H15, and is expected to be finished in 2H17.
- Electronics CEO Kwon Oh-hyun: "Our investment into the new fabrication plant will influence the shaping of Samsung’s future semiconductor business." Samsung (like peers) has seen its mobile DRAM and NAND flash sales grow rapidly over the last two years.
- The company says capacity could be allocated to either memory or logic IC manufacturing, depending on demand. Samsung is the world's biggest DRAM and NAND flash manufacturer, but also has a growing foundry business that's hoping to grab share following next year's 14nm transition.
- Micron sold off in July after Samsung hiked its 2014 DRAM production forecasts, but eventually recovered.
- Aside from Micron, Samsung's plant could have an impact on NAND giant SanDisk (NASDAQ:SNDK), foundry kingpin TSMC (NYSE:TSM), and DRAM/NAND rival SK Hynix (OTC:HXSCL -5.1% in Seoul)
- Update (10:01AM): SanDisk is now down 1.5%. Micron is down 2.5%. TSMC is up 0.3%.
Fri, Sep. 26, 5:00 PM
- Several firms have hiked their Micron (MU +6.8%) targets following the memory giant's FQ4 beat and above-consensus FQ1 guidance. Shares closed about a dollar below a July high of $34.85.
- Jefferies' Sundeep Bajikar (PT hiked to $42) says the numbers are "likely to increase the probability of ~$4 EPS power in investors’ minds, and help closet bears embrace permanent DRAM industry changes with less fear." He forecasts $3.4B in FY15 (ends Aug. '15) free cash flow, up from $2.6B in FY14.
- Drexel Hamilton's Rick Whittington takes Micron's performance as proof the company has sidestepped Samsung's DRAM capacity hike. "Samsung’s DRAM output shock last month appears absorbed as computing upsides have accounted for the increased bits” — and it is set to benefit from rising complexity of DRAM production."
- Nomura's Romit Shah observes guidance for low-single digit DRAM ASP growth is much better than his prior forecast for a 4% drop. BofA/Merrill reports (citing talks with management) some OEMs "want to purchase DRAM at a fixed price (no cuts) for the entirety of 4Q14 due to shortage concerns."
- On the CC (transcript), Micron forecast 2015 DRAM industry bit supply growth will be in a low-to-mid 20% range, down from a 2014 level of ~30%. Moreover, high-teens to low-20s growth is expected in later years, as restrained capex keeps a lid on output.
- Industry NAND output is expected to grow at a high-30s to mid-40s clip in 2015, following high-30s to low-40s growth in 2014. 3D NAND investments and interest in addressing strong mobile/SSD demand is fueling the growth.
- SanDisk (SNDK +2.3%) followed Micron higher.
Fri, Sep. 26, 9:14 AM
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