Back to top

Analyst Blog

Zacks Equity Research

Micron Thriving on Better DRAM & NAND Pricing: Time to Buy?

WDC STX MU AMBA

Trades from $3

We issued an updated research report on Micron Technology, Inc. (MU - Free Report) on Oct 12. Notably, Micron posted better-than-expected fourth-quarter fiscal 2016 results on Oct 4.

Although the company posted non-GAAP loss per share during the quarter, it was narrower than the year-ago quarter, as well as the Zacks Consensus Estimate.

Furthermore, Micron’s revenues in the quarter decreased 10.6% on a year-over-year basis to $3.217 billion. However, it surpassed the Zacks Consensus Estimate of $3.110 billion. Also, reported revenues increased on a quarter-over-quarter basis (up 11%), primarily due to pricing improvement in the DRAM memory chip market and recovery in the PC market.

Buoyed by better-than-expected results, the company provided an encouraging first-quarter fiscal 2017 guidance. For the quarter, Micron expects revenues in the range of $3.55 billion to $3.85 billion. The company expects earnings per share in the range of 13 cents to 21 cents. Both the top and bottom line guidance were higher than the respective Zacks Consensus Estimate at that time.

Micron offers both DRAM and NAND products. DRAM chips are a key component in PCs, while NAND flash chips are critical for portable electronic devices. The improving prices for DRAM and NAND chips make us optimistic about the company’s near-term performance. Per various sources, DRAM and NAND prices have improved primarily due to a better product mix optimization and stronger-than-expected demand for PCs, servers and mobiles.

Furthermore, the company is expected to benefit from strong demand for NAND flash memory chips, which is used in smartphones and tablets. Driven by new tablet products and greater adoption of solid state drive (SSD), total demand in the NAND flash memory industry could surpass manufacturing capacity, leading to a periodic shortage and higher pricing in the near term.

It should be noted that Micron has been expanding in the SSD storage market due to the decline in the PC market. SSDs are faster and more energy efficient than traditional hard drives. SSDs are also being used in servers due to lower latency, which in turn, facilitates faster response to real-time applications.

In an effort to expand its SSD product portfolio, last year, the company partnered with Seagate Technology plc (STX - Free Report) to supply a significant portion of the latter’s NAND requirement. In return, Seagate shares its SAS SSD technology with Micron – a key technology that the latter lacks in the enterprise SSD market. We believe that the deal will expand Micron’s high-value enterprise SSD portfolio.

Micron is positive about the product launches and growing demand, particularly that of SSD products. The company has been constantly innovating in memory technologies, spanning DRAM, NAND and NOR Flash memory solutions, which are being widely used in the latest mobile computing devices as well as in consumer, networking and embedded products.

However, after acquiring SanDisk, Western Digital Corp. (WDC - Free Report) has become a key player in the NAND space, which could increase competition in the industry.

Currently, Micron has a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Another stock worth considering in the broader technology sector is Ambarella Inc. (AMBA - Free Report) which develops video compression and image processing semiconductors. The company sports the same Zacks Rank as that of Micron and has a long-term EPS growth rate of 14.8%. The Santa Clara, CA-based company has surpassed the Zacks Consensus Estimate in all the trailing four quarters with an average positive surprise of approximately 62.8%.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>