Summit Sees More Questions, Less Answers At Micron

• Micron Technology, Inc. (NASDAQ: MU) shares have plummeted 58 percent year-to-date, and are trading close to the lower-end of their 52-week range of $13.50 - $36.59.
• Summit’s Srini Sundararajan maintained a Buy rating on the company, with a price target of $25.
• Despite beating expectations, Micron’s F4Q15 results did not reflect substantial improvement in memory in general and at the company in particular, Sundararajan said.

Micron reported its F4Q results ahead of expectations, while announcing disappointing its F1Q16 guidance. The company guided to revenue of $3.35B-$3.6B and EPS of $0.20-$0.26, significantly short of the Street’s $3.74B and $0.38, respectively. The guidance for non-GAAP gross margin came at 24.5-27 percent.

Analyst Srini Sundararajan pointed out that the disappointing guidance was partly on account of a “swollen opex” of $580-$620M. These opex figures are higher by $40M-$50M than what would have been anticipated in view of the revenue guidance.

“We have a difficult time modeling why such an increase of opex causing downsiding of EPS is being forecast. So, questions remain such as: why is opex high and is this a kitchen sink opex quarter etc.,” Sundararajan wrote.

Micron’s F4Q commentary indicated healthy DRAM end-market demand in non-PC markets and “relatively stable” NAND demand. While mobile bit demand is currently growing at 50 percent, server bit demand is rising 40 percent.

Sundararajan added, “MU sees itself achieving 50% of the bits shipped at 20nm by F3Q16 (we need more details) at 20nm, at better GM…Additional, due to new contract with Inotera, mid-to-high single digit GM improvement likely to be realized.”