Jefferies' 7 Myths About Micron Technology

In a Flash Note Monday morning, analysts at Jefferies had a key takeaway and seven reasons to buy the recent weakness in Micron Technology, Inc. MU.

Key Takeaway

"MU has underperformed the SOX by 2,000bps over the last 3 months, we think because investors are concerned Micron is falling further behind competition in memory technology, and Samsung is flooding the market with excess supply. Our checks suggest Micron is making solid progress in 20nm DRAM, TLC and 3D NAND, and is likely to expand its market share of mobile and SSD in 2015. We expect NAND prices to stabilize and DRAM prices to improve. We prefer MU over SNDK."

7 Reasons To Buy The Weakness

• "Myth #1: Micron is Struggling in 20nm DRAM. Our checks suggest Micron's (including Inotera/Elpida) 20nm migration is going well, and we expect bit growth contribution from 20nm to become more obvious by C2H15.
• "Myth #2: Samsung Will Drive Down DRAM Prices. Consistent with our TSMC disruption thesis, Samsung confirmed on its 4Q14 earnings call that it would use Line 17 Phase 2 for S.LSI (i.e. foundry), not DRAM, neutralizing a long-standing bear concern.
• "Myth #3: 3D NAND Does Not Work. As the industry transition to 3D NAND accelerates in 2H15, we think the competitive landscape could become more favorable for Micron. We believe Micron and Intel are making solid progress in 3D NAND.
• "Myth #4: Micron Will Never Have TLC NAND. As Micron transitions to 3D NAND starting in C2H15, we expect Micron's TLC NAND mix to grow.
• "Myth #5: EUV Will Magically Restore Moore's Law Scaling. Our checks suggest EUV will most likely be used in combination with multi-patterning. With solid advances in spacerbased multi-patterning, we expect EUV to find it difficult to compete with existing fully depreciated DRAM and NAND fab equipment.
• "Myth #6: MU Should Trade at a Deep Discount Because Earnings Are Not Sustainable. MU trades at 9x TTM EPS, whereas the broader semiconductor universe trades at 15-to-20x NTM EPS. We expect Micron to grow revenues and margins faster than the average semiconductor company in 2015/16.
• "Analyst Day Catalyst. We expect Micron's upcoming analyst day on 2/13 to deliver positive product updates and help clear up investor misunderstanding of Micron's technology and product position."

Jefferies has a Buy rating on Micron Technology with a $42 price target. Shares closed Friday at $28.91.