Redstone's Iyer: Short Micron, Still Headwinds

Despite a 61.7 percent selloff in the past year, Redstone analyst Jagadish Iyer believes Micron Technology, Inc. (NASDAQ: MU) is still facing some stiff headwinds. Micron's most recent quarterly earnings report included weak revenue on a 9.0 percent quarter-over-quarter decline in DRAM, a 10.0 percent quarter-over-quarter decline in pricing and a 1.0 percent uptick in cost.

The end result of all these factors was a 8.0 percent decline in DRAM gross margins, which fell to 21 percent. Since DRAM accounts for more than half of Micron’s total revenue, the company’s overall gross margins also fell 5.6 percent to 19.7 percent.

Unfortunately for Micron shareholders, Iyer doesn’t see any relief from the challenging DRAM environment coming any time soon. He believes that Micron can’t afford to cut its $1.2 billion capex in the Feb quarter as it ramps up its 20nm DRAM and 3D NAND initiatives.

Related Link: Micron Shares Continue Lower As Analysts Leaning Bearish

“We think the earliest Micron sees margin uplift is in the Nov ’16 qtr as benefits of cost down from large scale 20nm conversion and the positive impact from closure of [the] Inotera acquisition happens,” Iyer explains.

In the meantime, Redstone believes Micron will continue to log negative free cash flow and the stock will stay in the $9-11 range.

The firm maintains a Short rating and $9 price target.

Disclosure: the author holds no position in the stocks mentioned.