The Bottom Is Nigh For Micron; Why UBS Is Buying

• Micron Technology, Inc (NASDAQ: MU) shares have declined steadily since the beginning of the year and are down 58 percent year-to-date.
• UBS analyst Stephen Chin maintained a Buy rating on the company, while reducing the price target from $25 to $20.
• Chin expects softness in the mobile DRAM segment to result in more near-term weakness, but views improved industry discipline as positive.

Analyst Stephen Chin mentioned that industry supply checks suggest a slowdown in the DRAM industry bit supply growth in C16.

Chin believes that mobile DRAM demand could come under pressure due to macro headwinds that are impacting global demand for smartphone, while PC builds for the new Skylake platform from Intel Corporation (NASDAQ: INTC) are “OK but not great.”

While PC DRAM pricing was weak in the first half of the year, mobile DRAM pricing is also expected to weaken in the near future. Chin added, “[We] now model for Aug/Nov '15 quarter ASP declines of -12%/-15% q/q vs the prior -10%/-5%.”

Tepid to soft demand in most DRAM end-market verticals is expected to result in better industry discipline in terms of capacity additions, Chin believes. He added that an improvement in PC or smartphone bit demand, along with slower supply growth, would enable Micron to realize “earnings stabilization.”

The EPS estimates for F4Q, F1Q16 and F2016 have been reduced from $0.30 to $0.22, from $0.41 to $0.18 and from $2.30 to $1.00, respectively, to reflect lower earnings momentum.