With the US and China resuming their trade war, Micron (MU) is being caught in the crossfire. The chip giant relies heavily on Chinese sales, as it generated $17 billion of its total $30 billion in 2018. But with the reignition of the trade war, its stock is down 21% since the beginning of the month, over fears tariffs will hurt revenue. This comes as the company and industry is climbing out of a massive hole, following the collapse of the DRAM and NAND market in 2018.
Micron has recently laid out its technology roadmap, highlighting its 3D NAND (128 layer) and DRAM technology (1Znm), as well as 3D XPoint. The company said it stopped sending shipments to Huawei, which the US recently put on a ban list.
Needham analyst Rajvindra Gill believes the company “continues to be adversely affected by Huawei concerns, and a soft memory pricing environment.” As a result, the analyst maintains a Hold rating on the stock, without suggesting a price target. (To watch Gill’s track record, click here)
Micron’s “capital intensity in scaling has continued to grow due to the complexity of each node transition,” says Gill, as the company said DRAM scaling has slowed. Currently, the company has four nodes for DRAM in different development stages, including the 1Z (customer qualification stage), 1-alpha (yield improvement), 1-beta (early process integration), and 1-gamma (architectural pathfinding).
On NAND, Gill says “Micron’s main focus is developing its next-generation 128 layer 3D NAND technology, its first 3D NAND technology using replacement gate technology, as opposed to floating gate technology.” Micron, during the call, said progress has been made with “the transition to replacement gate technology.”
But with NAND transitioning to replacement gate technology, the company is expected to continue with high spending. Gill points out that, “in the past few years, the cost reduction per node has leveled off, due to increasing capital intensity and process complexity….[and expects] these two factors to limit the rate of cost reductions throughout the next few years.”
All in all, though Micron’s stock is down more than 20% since its 2019-peak, investors are not too concerned. The company has had bad luck with event out of its control, including the industry collapse (which was worse than normal) and the US-China trade scuffle. Many investors see the company as in good shape once these external factors normalize. TipRanks analysis of 26 analyst ratings shows a Moderate Buy rating, with 13 analysts recommending Buy, nine saying Hold and four Selling. The average price target among these analysts stand at $51.60, representing a 55% upside. (See MU’s price targets and analyst ratings on TipRanks)
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