Summit Sees DRAM Cap EX And NAND Wafer Count Increases Benefiting Micron Technology

Micron Technology MU will be reporting earnings after the close on Thursday. For Q4 2014 analysts expect Micron to report $0.80 per share, a 3x growth over the $0.20 reported for the same period last year. The driver, according to Summit Research Partners, will be a DRAM shortage and improvements to Micron’s NAND business.
Summit analyst Srini Nandury sees Micron current cap ex spending in DRAM development and NAND wafer count increases continue through the remainder of 2014. Nandury observers four “timely observations” which generate a pretty strong bull case for the semiconductor device maker:
ForEx
“A falling Yen helps MU as its product is sold in dollars while Elpida costs are denominated in Yen. This should be a tailwind for GM and for EPS as long as the trend continues. In addition, this should also result in lower payments for Elpida for this year”.
Tangent Tailwind From IBM’s Grantley Server Chips
“Grantley's release for servers should continue to act as a tailwind for healthy server DRAM consumption, and, more specifically, for DDR4. Furthermore, negative news on PCs have stopped coming”
Contract Pricing Increased Through August
“Mobile DRAM is always contract and this suggests that the fear of non-availability has tended to get more of PC DRAM users to convert to contract basis”.
Demand-Side Benefits
“Demand for enterprise use NAND remains strong, though NAND ASPs have been declining. By YE2014, Micron should be at 25% output of 16nm, lower in cost than the 20nm version. In addition, Micron is trying to make its 3-bit per cell (TLC) work across applications but that might take up to CQ1. However, even in the current quarter, Micron's portion of NAND used in SSDs continues to increase, increasing ASPs. “
Before going out to buy the stock before the earnings report, recall what Micron provided for NAND and Solid State Drive (SSD) guidance:
“NAND margins expected to be down in this quarter, due to both ASP drops as well as SSD start-up costs (test, packaging, controller costs) and a legacy pricing arrangement with a customer whose uptake is going down”.
Micron’s stock price has appreciated roughly 50 percent in 2014 and the continued fundamentally strong under-laying strong is expected to help drive further appreciation. With an hour of trading remaining on Wednesday Micron traded up just over 3 percent to $32.16.