Deutsche Bank Is Buying Micron Despite Near-Term Demand Pressures

Deutsche Bank’s Sidney Ho maintained a Buy rating on Micron Technology, Inc. MU, while lowering the price target from $17 to $16.

“Near term softness aside, we remain optimistic that MU will execute on its technology roadmaps, driving relative outperformance for its revenues and gross margins starting in the second of CY16,” Ho mentioned.

Weak Demand

The analyst also stated that channel checks indicate that PC build remained weak during C1Q, which in turn led to excess inventory in the PC supply chain, while PC DRAM prices fell 13 percent, quarter on quarter.

“While suppliers have aggressively moved their DRAM production towards mobile and servers (data centers), we also see greater than seasonal decline in demand in those two markets,” Ho pointed out.

This demand weakness is expected to persist into C2Q, with an additional 8019 percent decline likely in DRAM ASP.

However, the rate of price decline is likely to decelerate, given that some suppliers have pulled back from taking part in very aggressive pricing. “In addition, DRAM content per PC has increased over the past two months and OEMs are offering free memory upgrades,” the analyst noted.

Estimates Reduced

The F2Q, F3Q, CY16 and CY17 EPS estimates have been lowered ahead of Micron Technology’s F2Q16 results, which are expected on March 30.

Ho mentioned that the reduction is based on “slower PC/mobile/server end demand, continued DRAM price pressure and worse than expected financial performance of Inotera.”