Stifel's Conclusions From Meeting With Micron's Management

Stifel analysts Kevin E. Cassidy and Dean Grumlose last week hosted a few investor meetings with Micron Technology, Inc. (NASDAQ: MU)’s Vice President of Investor Relations, Kipp Bedard. In a report issued Friday, they share their main takeaways.

The analysts left the meetings “with greater conviction that the DRAM industry has changed,” and Micron shares remain their top pick in their coverage universe. They see “the recent PC DRAM oversupply and subsequent selling price declines as the first test of whether the remaining DRAM competitors can react rationally,” which the analysts believe have.

In addition, Micron has “a sound strategy in place to improve its NAND Flash gross margins and can take a leadership position in the developing 3D NAND Flash market.”

Stifel reiterated a Buy rating on Micron, accompanied by a $47 target price.

A few key points from the meetings:

• “Micron is transitioning 10% of its DRAM bits from PC DRAM to MobileDRAM.”
• The firm believes this will stabilize PC DRAM prices and could lead to an increase in PC DRAM prices in the second half of the year. The industry also seems to be reacting rationally.
• Customer forecasts suggest that DRAM supply for mobile, server and networking could remain limited over the year.
• “Smartphone adoption of embedded multi-chip package memories (eMCP) is expected to increase from 10% of handsets today to ~60% next year.” This could increase Micron's embedded NAND Flash GM by 10 points, the report states.
• The company’s 3D NAND is expected to represent 30 to 50 percent of its NAND Flash bits by the end of 2016. 3D NAND Flash is particularly useful and applicable to every device that needs high-density storage.
• The analysts don’t see China moving into leading edge DRAM any time soon. “Lack of IP, equipment and processes adds years to development time. Other countries' failed attempts to develop and support a DRAM industry should be a leading indicator.”