Just recently, Micron Technology (NASDAQ: MU) reported its performance during the first quarter of fiscal year 2016. After the report, shares of the chipmaker responded with a significant drop, showing a decline of as much as 7 percent in early hours of trading. Micron Technology was able to pull itself to the expectations of analysts for the first quarter, but posted an alarming guidance for the present quarter.
The chip manufacturer has been significantly affected by plunging demand for personal computers. As Micron is the only American supplier of DRAM chips to makers of personal computers, it experienced a severe impact from declining prices of DRAM, which was down by about 13 percent in comparison to the past quarter.
Micron revenues stand at $3.5 billion, which is lower by 27 percent year-over-year (YoY), while non-GAAP earnings posted at $0.24 per share—signifying a decrease of 75 percent from the same quarter during the previous fiscal year.
Pacific Crest, Credit Suisse, as well as Stern Agee released their research noted recently and cut their price target on Micron Technology due to near-term weaknesses they found on the company’s stock.
Credit Suisse reinstated an Outperform rating on the MU stock, but asserts that although the second quarter may be lackluster, Micron Technology will become more profitable during the second half of fiscal year 2016 because of increasing cost cuts. Furthermore, as international mobile system-on-chips adapt to new standards in RAM, the chipmaker will be able to boost its gross margins. Based on the firm’s estimates, Micron Technology’s relative cost at 20 nanometer nodes will improve by approximately 10 percent to 15 percent in the following year.
Pacific Crest reduced its price target on the MU stock from $21, down to $18. Despite this, it still maintained an Overweight rating on the stock. The firm stated that the major growth driver in the 2HFY1 is the new Inotera agreement which could result in high DRAM margin upside from Micron’s 3QFY16.
According to Pacific Crest, it anticipates that by that time, the US chip manufacturer will be able to convert more than half of its DRAM bits to 20 nanometers, thereby, improving its margins. On the other hand, the NAND margins must be pushed higher during the latter half of the following year, as Micron ramps 3D NAND and boosts the proportion of triple level cell and enterprise storage devices.
Furthermore, another positive for the company coming up could be the part of Samsung in stabilizing the markets. Based on the findings of Pacific Crest, Samsung will not add any new DRAM capacity in Line-17 fabrication plant. The good thing about this is that the prices of DRAM are hitting floor levels. However, the unfortunate news is that it will likely take some time.
Micron Technology is currently trading at 0.8 times its Book Value per share, which according to Pacific Crest stands at approximately $18.
The US chip manufacturer can be considered an acquisition target. Micron has co-developed 3D XPoint with Intel Corp. If the 3D XPoint performs well, the chipmaker will be able to convert its current DRAM capacity to this advance solution, which in turn, will support its margins.