Morgan Stanley: Keep Selling Micron Stock

In a report published Friday, Morgan Stanley analyst Joseph Moore maintained an Underweight rating on

, while lowering the price target from $21 to $19. The company has guided to the August quarter significantly below the analyst's estimates, driven by deterioration in pricing and unexpectedly higher costs. The analyst believes that while the company is unlikely to see any seasonal lift until Q4, Micron Technology is likely to witness weaker pricing in 2016. "Price weakness has spread to server, as we had forecast, but we were surprised by DRAM costs rising in the August quarter, as production continues to be below our estimates due to the product transitions," Moore stated, adding that he preferred to remain cautious regarding pricing during CQ3 across all of the company's end markets, including mobile. The analyst expects the company to begin to recover lost production in the November quarter. In addition, there is likely to be a modest oversupply, across the board, in the DRAM segment, not limited to PCs. "The company acknowledged weaker pricing was meaningfully impacting the server market, consistent with our checks in Asia two weeks ago, though they draw the distinction between "cloud server" which is more price sensitive, and enterprise server, moving to DDR4, which is more stable," the Morgan Stanley report added. On a more positive note, Micron Technology witnessed an increase in ASPs in the May quarter, driven by mix, while guiding to flat pricing for the August quarter. "We agree with the company's forecasts that NAND conditions should remain strong, though we would caution that there is likely to be heavy 3D startup expense in 2h16," Moore stated.