PA

Why I'm Buying Micron- Part II

You definitely want to run and read Raymond James writeup on MU Friday.......
U.S. Research
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© 2009 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
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Micron Technology, Inc. June 26, 2009
(MU:NYSE) Company Comment
Hans Mosesmann, [phone], Hans.Mosesmann@Raymond...
Semiconductors ______________________...
MU: DDR3 Transition Starting - Advantage Micron
♦ Thursday after the close Micron reported May quarter EPS of $(0.36), above our $(0.53)
and the Street’s $(0.43) estimate primarily driven by a $242 million benefit from sales of
products written down in prior periods and significant reductions in manufacturing costs.
May quarter sales were $1.1 billion, up 11% sequentially and in-line with our estimates.
♦ This was a solid recovery quarter for Micron as demand trends in DRAM are good and
suggest seasonality entering the second half of the year.
♦ Core DRAM ASPs continued to improve, however specialty DRAMs (non-PC) continued to
languish keeping overall ASP’s in check. Micron gained DRAM market share in the quarter.
♦ NAND memories were a mixed bag with trade ASPs up significantly offset by lower ASPs
overall given sales to JV partner Intel (which benefited from lower NAND wafer expenses as
Micron sells to Intel at cost). Unit demand is seasonally weak entering the summer.
♦ The CMOS sensor business is being sold and will become less of a drag. This benefits our
operating expense assumptions going forward.
♦ Micron expects PC demand to be fairly seasonal going forward and has not seen any
evidence of channel accumulation of inventories as all players are cash flow conscious.
♦ Interestingly, Micron believes that ~30% of global DRAM capacity that was “turned-off”
earlier in the year and only 5-10% may be coming back. Current DRAM prices are still
below the cost of the industry laggards.
♦ More intriguing is that the bulk of that 30% industry capacity (and some that was not taken
off) is not viable in producing DDR3 DRAM. Hence, the decision to bring this existing
capacity back to the market is one that is complicated by the fact that DDR2 has begun a
decline into obsolescence in PCs.
♦ The shares may trade off somewhat today due to recent upward estimate revision, but the
structural changes in the DRAM industry that are driving the current consolidation will, in
our view, lead to memory undersupply in 2H09 and 2010. Micron's commentary confirms
this worldview, in our opinion.
♦ We are raising our price target to $15 per share from $14 based on a mid-teens P/E
multiple to our new CY10 EPS estimate of $1.05, which we view as conservative given that
the consolidation dynamic set to play out over the next one to two years is one that has
never occurred in the history of commodity memories. We continue to recommend the
shares as a Strong Buy for more aggressive investors.