This Analyst Isn't Flinching At Micron

• Micron Technology, Inc. MU shares are down 53 percent year-to-date, and are trading significantly below their 52-week high of $36.59.
• Cowen & Co’s Timothy Arcuri maintained an Outperform rating on the company, with a price target of $24.
• Structural improvements in DRAM are likely to become apparent next year, while there is upside in 3D NAND for Micron, Arcuri said.

Meetings with Micron’s IR and CFO support the thesis that conditions could continue to be tough in the near term, with ASP headwinds in both DRAM and NAND likely to more than offset “an underlying positive inflection in DRAM blended cost/bit starting in Nov and more amplified in Feb,” analyst Timothy Arcuri said.

This indicates that gross margin could remain under pressure in the near term. Arcuri mentioned that FQ3:16 would be the first full quarter of:

1. Margin expansion from the Inotera agreement
2. 20nm volume crossover
3. Robust TLC ramp for NAND

“In DRAM, 20nm yield ramps at Hiroshima and Inotera are progressing as planned with >50% bit crossover in FQ3:15 (May) with ~50% of DRAM bits to be on DDR4 by CYE15. This 20nm plan is in-line, but the DDR4 shift is ahead of our expectations,” Arcuri wrote.

In NAND, Micros expects more than 50 percent of bits to be 3D by yearend 2016. Regarding TLC, the company continues to be “behind the curve” with less than 10 percent of bits at present and “we think struggling for qualification on 32L, but ramp plans remain very aggressive for '16,” the analyst added.

Micron indicated that it still plans to sell its own branded product, just like Intel Corporation INTC. Arcuri believes that 3D XPoint could “grow to a meaningful portion of revenue by C2018.”

In the report Cowen mentioned that investor concerns on Intel and China appear “grossly overblown,” and that “structural improvements in DRAM will become apparent in '16, and 3D NAND is all upside for MU.”