Micron (MU): What Will the Next Batch of iPhones Mean for DRAM Demand? Top Analyst Weighs In

RBC Capital's Amit Daryanani sees mobile DRAM demand continuing to be robust and MU shares tracking toward $8.00+ in EPS.

What will the release of the next Apple iPhone cycle spell out for Micron Technology, Inc. (NASDAQ:MU)? One of Wall Street’s best performing analysts is out eyeing potential iPhone implications for the chip giant. The verdict: Apple’s forthcoming smartphone launch will translate to “volume and content tailwinds to mobile DRAM demand.”

Top analyst Amit Daryanani at RBC Capital shares his insights following Nikkei buzz on Friday. An unconfirmed report indicates the tech titan has requested the supply chain to ready 20% less components for the new iPhone models, which have good odds for release by the close of 2018.

Yet, as this is an unofficial report, Daryanani questions the validity of the rumor. Even should this come to pass, the article is not suggesting a comparable dip in iPhone volumes for a slew of reasons, continues the analyst; namely, “existing inventory” and “difference in ramp timings and mix.”

Worthy of note, DRAM diversification is in play, as the analyst sees this happening with DRAM applications throughout the last decade. This has led to a structural transition in DRAM demand. PCs comprised of over half of total DRAM bits consumed at their record-high contribution 9 years ago, but the analyst surveys share of PC consumption in total DRAM bits has made a gradual plunge from that time forward. The standout boost has occurred in smartphones, now taking up over a third of total bits consumed. Moreover, server demand contribution has taken a jump over the past 8 years, with the analyst wagering these tailwinds are primed to keep spinning thanks to sustained datacenter and hybrid IT related demand.

There are additional drivers transcending memory pricing, notes Daryanani, who sees a company calling for $3.0 billion of savings throughout the upcoming two to three years on back of better cost and bit/wafer. In other words, in a case where pricing stumbles to 30% to 40%, the analyst anticipates Micron can still realize $5 to $7 of EPS. Meanwhile, with the latest cap allocation update pointing to a $10 billion buyback utilizing 50% of free cash flow and MU paying down $4.7 billion of debt and $1.2 billion of converts, this “should also support EPS growth.”

Ultimately, “Given that AAPL is one of the largest memory consumers and MU’s mobile segment focus, it is important to think about iPhone expectations vs. DRAM outlook. We think the next iPhone cycle would likely see ASPs down and uptick in volumes, particularly given the expectations of a budget phone. Second, we think that average DRAM content will go up meaningfully this cycle given that AAPL has remained at same DRAM configuration at base level phone for three generations (2GB RAM at iPhone 6s, 7, 8) and even the premium iPhone X at 3GB RAM is lower vs. the latest Samsung Galaxy and Google Pixel phones. In addition, continued focus on AR/VR as seen at WWDC would require richer configurations. Finally, non-mobile DRAM tailwinds remain strong particularly server DRAM due to cloud spend, which should mean ASP on the mobile side would remain strong,” argues Daryanani, who sees the tech stock raring to soar past $8.00 long-term in mid-cycle EPS Power. This would open a window to a stock price approaching $80, which is where the analyst places his bet for target expectations.

As such, the analyst maintains an Outperform rating on MU stock with an $80 price target, which implies a 31% upside from current levels.

Amit Daryanani has a very good TipRanks score with an 86% success rate and a high ranking of #14 out of 4,828 analysts. Daryanani yields 28.0% in his annual returns. When recommending MU, Daryanani garners 10.6% in average profits on the stock.

TipRanks suggests optimism circulating around the MU story. Out of 24 analysts polled in the last 3 months, 18 are bullish on Micron, 5 remain sidelined, while 1 is bearish on the stock. With a return potential of 26%, the stock’s consensus target price stands at $77.50.

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