Micron's DRAM Price Weakness Hinders Guidance

• Micron Technology, Inc. MU shares are down 58 percent year-to-date.
• Argus’ Jim Kelleher maintained a Buy rating for the company, while reducing the price target from $26 to $22.
• Micron reported mixed results for F1Q and announced disappointing guidance, refleting continued DRAM price weakness, Kelleher stated.

Micron reported fiscal 1Q16 revenue of $3.35 billion, missing expectations of around $3.5 billion. The company’s performance was impacted by further weakness in DRAM pricing, with a 13 percent sequential decline, as well as a mid-single-digit decline in NAND pricing. Non-GAAP profit, at $0.24, beat expectations, analyst Jim Kelleher said.

Micron recently inked an agreement to acquire the remaining interest in Inotera Memories for about $3.2 billion, net of cash and debt. Micron currently owns a 33 percent stake in Inotera, and expects to acquire the remaining stake in mid-2016. “As 2016 progresses, Micron should begin to achieve operating benefits from acquiring all of Inotera,” Kelleher commented.

The company guided to 2Q16 revenue of $2.9-$3.2 billion, gross margin of 17-20 percent and a GAAP loss of $0.12-$0.05 per share. At the midpoint, the guidance reflects a 24 percent y/y decline in revenue.

Kelleher reduced the FY16 estimate from $1.75 per diluted share to $1.14 per diluted share. The FY17 non-GAAP estimate has been reduced from $2.38 per diluted share to $1.72 per diluted share. “We note that consensus estimates for MU are unlikely to stabilize until the company can confidently forecast a return to profitability,” the analyst wrote.

Micron’s shares have lost 58 percent year-to-date, as compared to a 26 percent decline in the peer group of Argus-covered storage companies”. We recommend MU for risk-tolerant investors aware of the risks of investing in a beaten-down stock,” the Argus report stated.