Yesterday, Micron’s (MU) EVP of Technology Development, Scott DeBoer, presented an update on the company’s roadmap and strategy. During the presentation, DeBoer disclosed that the company halted shipments to Huawei due to its blacklisting by the U.S. From a financial perspective, this could lead to a major impact on Micron given that Huawei represented 13% of the company’s sales in the first two quarters of fiscal 2019.
Susquehanna analyst Mehdi Hosseini believes that while exposure to Huawei is a near-term concern, long-term challenges are more cost-related as “MU’s Tech Roadmap suggests cost curves are flattening, which means GM expansion is more dependent on ASP increases and product mix (with increased emphasis on value-add products).”
Hosseini remains sidelined on Micron stock, reiterating a Neutral rating and $35 price target, which implies a slight upside from where shares are currently trading. (To watch Hosseini’s track record, click here)
Hosseini said that with respect to memory average selling price (ASP) trends, which have so far declined at a faster pace than expected, he expects “the memory industry as a whole to continue to aggressively cut back wafer starts in 2H19, in an attempt to clear inventories and help with ASP stabilization. This could eventually lead to some tightness and associated ASP increase/ GM expansion in 2020.”
Did somebody say tariffs? Here’s what Hosseini said about MU’s biggest headwind in 2019:
Although we have no insight on tariff negotiations (which has direct implications for MU’s largest customer, Huawei) we welcome and encourage (1) aggressive cuts to 2H19 (DRAM/ NAND) wafer starts, and (2) a more gradual increase in wafer capacity adds in 2020-2021. These two trends, if materialized, will be viewed positively for the industry and MU in particular. On the technology front, MU does not expect EUV to be inserted for DRAM application for two more nodes (1Znm, 1anm) due to challenges associated with the exposure dose.
Overall, if we step back and look at the bigger picture, we can see that the initial word hovering around MU stock points to the bulls, as TipRanks analytics exhibit MU as a Buy. Out of 26 analysts polled in the last 3 months, 13 are bullish on MU while 9 remain sidelined, and only 4 are bearish. The 12-month average price target stands at $51.60, marking a 52% upside from current levels. (See MU’s price targets and analyst ratings on TipRanks)