The Nikkei has reported that Changjiang Storage, a memory chipmaker in China, is presently in talks with Micron Technology Inc. (NASDAQ:MU) regarding forming a strategic alliance. In the deal, Changjiang Storage will receive funding to the tune of $24 billion to be able to build out memory facilities and has plans to build 300k wafers per month in 3D NAND and DRAM capacity for mass production come 2018.
Additionally, the article indicates the two companies are in discussions to come to terms on a licensing agreement for DRAM as well as for NAND, manufacturing JV, and equity investment.
From Nomura analyst Romit Shah‘s viewpoint, this further bolsters his belief that a manufacturing partnership between the chip maker and China is practically “inevitable” and would be strategically beneficial to both companies. Therefore, the analyst reiterates a Buy rating on shares of MU with a $23 price target, which represents just under a 20% increase from current levels.
Shah argues, “We know that IP, technology, and brand create high barriers. As such, we believe China is looking to partner with incumbents in the space. At the same time, we believe Micron is looking to strengthen its positioning in NAND against rivals such as Samsung and Intel. The company is lagging in scale (market share = 15%). A partnership with China would expand the company’s footprint and improve profitability.”
While the chip maker might not be entirely “averse” to working together with China,” the analyst does note skepticism “that the company would engage in cross-selling of DRAM or NAND IP. The U.S. government has already expressed concern about Micron sharing its DRAM IP with China. In NAND, Intel is likely to have a heavy hand in the discussions, and in our view, would not support an IP licensing agreement.”
“As such, we believe a supply agreement is most likely to resemble Micron’s joint venture with Inotera, whereby Changjiang would only be allowed to produce for Micron,” Shah surmises.
As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Romit Shah is ranked #190 out of 4,229 analysts. Shah has a 63% success rate and gains 10.9% in his annual returns. When recommending MU, Shah earns 12.8% in average profits on the stock.
TipRanks analytics demonstrate MU as a Buy. Out of 20 analysts polled by TipRanks, 15 are bullish on Micron stock, 3 remain sidelined, and 2 are bearish on the stock. With a return potential of nearly 5%, the stock’s consensus target price stands at $20.20.