5 Takeaways From Micron (MU)-Intel (INTC) 3D XPoint Split: Goldman Sachs

After six years of joint development on 3D XPoint technology, Intel (NASDAQ:INTC) and Micron (NASDAQ:MU) have decided to call it quits. The development partnership of the non-volatile memory technology would end with the second-generation 3D XPoint. However, the technology development beyond the second generation will be pursued independently by the two companies.

What does it really mean for Micron? Here are five key takeaways, courtesy of Goldman Sachs analyst Mark Delaney:

  1. We view this change as a continuation of the separation between the companies in non-volatile memory as Micron and Intel had already announced that they will do separate R&D for 3D NAND flash after finishing R&D of the third generation 96L product.
  2. We do not expect any change to the current underutilization charges that Micron is recognizing from 3D XPoint, which Micron quantified as a 100 bp headwind to its gross margin last quarter.
  3. We believe this R&D change could be a minor intermediate-term headwind to Micron’s EPS, as we believe that Micron could start to pay for incremental R&D costs next fiscal year to begin development of third generation 3D XPoint, and there wouldn’t be a revenue contribution until sometime after that.
  4. While this decision gives Micron more long-term optionality with 3D XPoint, we believe this change adds to Micron’s rising execution risk in non-volatile (i.e. both 3D XPoint and NAND).
  5. We continue to believe fundamentals in the DRAM business, and to a lesser extent NAND, are most important for Micron’s stock given the significantly larger contribution to Micron’s results from these businesses.

Net net, Delaney reiterates a Buy rating on Micron shares, with a price target of $68, which represents a potential upside of 18% from where the stock is currently trading. (To watch Delaney’s track record, click here)

The chip giant now looks like a very compelling investing opportunity, as TipRanks analytics showcasing MU as a Strong Buy. With an average price target of $83.95, analysts are predicting massive upside potential of 46% for the stock. In total, Micron stock has received 18 buy ratings vs. just 4 hold rating in the last three months.

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