Micron Technology, Inc. MU reported strong fourth-quarter results Tuesday, but the stock is losing ground on the Huawei standoff.
The Micron Analysts: KeyBanc Capital Markets analyst Weston Twigg maintained an Overweight rating and $70 price target.
Needham analyst Rajvindra Gill maintained a Buy rating and reduced the price target from $70 to $65.
Piper Sandler analyst Harsh Kumar reiterated a Neutral rating and cut the price target from $51 to $45.
Raymond James analyst Chris Caso reiterated a Strong Buy rating and $65 price target.
Rosenblatt Securities analyst Hans Mosesmann reiterated a Buy rating and $100 price target.
KeyBanc Sees Improving Dynamics For Micron: Micron's strong fourth-quarter results were achieved on the back of DRAM sales to cloud, gaming and PC customers; a ramp in QLC NAND; and strong demand from Huawei prior to a Sept. 15 cutoff, KeyBanc's Twigg said in a note.
The first-quarter revenue guidance of $5.2 billion plus or minus $200 million, though soft, is better than some feared, the analyst said.
In the near-term, softening enterprise demand and the Huawei ban are headwinds, he said.
Overall demand should improve through calendar year 2021 thanks to growing demand for graphics DRAM and reasonably good demand from cloud and PC customers, Twigg said, citing the company.
Despite the Huawei ban impacting the first- and second-quarter outlook, KeyBanc said it remains bullish due to likely improving dynamics in calendar year 2021 and good long-term tailwinds.
Why Micron's Present Is ‘Tense,' Future ‘Perfect': The halting of shipments to Huawei on Sept. 14 due to U.S. sanctions on China is the primary reason for the soft forward guidance, said Needham's Gill.
Huawei accounted for just under 10% of fourth-quarter sales, the analyst said.
Weak enterprise demand due to lower IT spending from COVID-19 and higher customer inventories leading to lower pricing have also impacted the guidance, he said.
"While we expect the near-term environment to be choppy, we expect several secular growth drivers in CY21: new CPU architectures driving higher server content, 5G smartphone growth, rebound in auto, ongoing gaming strength and cloud and AI machine generating higher memory growth," Gill said.
Piper Sandler On Micron's 'Indigestion': The below-consensus guidance reflects technology transitions in DRAM, headwinds from Huawei and lackluster trends in some end markets, Kumar said. Micron appears to be going through some "indigestion" in the near-term, the analyst said.
"Micron has applied for a license to ship to Huawei, but being granted one is still uncertain."
Piper Sandler notably lowered its EPS estimates for the first half of 2021.
Micron's Risk-Reward Favorable, RayJay Says: The factors leading to near-term weakness for Micron are all transitory by nature, Caso said in a note.
Micron has in excess of $7-per-share share earnings power in a recovery scenario, assuming a resumption of trendline demand trends, coupled with continued control of DRAM capex, the analyst said.
Despite Micron's suggestion of a strong recovery in the second half, Raymond James said it is cautious with respect to the NAND outlook due to Samsung's aggressive strategy.
"Net, we continue to view the stock's risk/reward favorably given the lowered near term expectations and our view of cyclical earnings power."
Rosenblatt Says Buy The Micron Dip: Huawei's 10% level run-rate shutdown will require one-and-a-half quarters to offset, Mosesmann said in a note.
Additionally, near-term gross margins will remain weak due to increased NAND mix and various new DRAM ramps, the analyst said.
The inventory issue is localized in enterprise, with no or limited inventory issues, the analyst said.
"Supply related discipline into 2021 from the oligopoly suggests to us tightness in DRAMs with NAND being more a wildcard, but we think modest given Micron's relative smaller exposure," he said.
Rosenblatt said it would use the reset resulting from one-off events such as COVID-19 and Huawei to buy the stock.
Micron Price Action: At last check, Micron shares were down 6.51% to $47.41.
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