Morgan Stanley: 'Stay The Course' On Micron, Weak Guidance For Historical Issues

Micron Technology, Inc. (NASDAQ: MU) reported an in-line quarter, while issuing a disappointing guidance.

Morgan Stanley’s Joseph Moore maintains an Overweight rating on the company, with a price target of $18.

Weak August Guidance

“The poor August quarter is mostly a function of management forecasting worse DRAM prices,” Moore mentioned.

With 45 percent bit growth seen during a six-month period, the analyst believes that manufacturing has been improving significantly, with yields clearly inflecting.

According to the Morgan Stanley report, the factors driving the weak guidance include: “1) backward looking price declines; 2) pressures from growing bits so quickly in 2 quarters that forces Micron to be the price aggressor despite overall positive conditions; 3) ongoing challenges with mobile qualifications, that should be cleared up in November; and 4) Management conservatism about the sustainability of recent channel upticks.”

Prices Improving

However, Moore believes if the improving commodity price environment continues, price weakness would not be a sustained concern.

In fact, the analyst believes DRAM and NAND commodities have turned a corner, and expects DRAM especially to remain robust through 2017.

“Micron highlighted that channel prices for both DRAM and NAND have sharply improved, but that this has not translated to actual price improvement with large customers,” Moore stated.