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Micron Technology Demand Drivers Extra point for DRAM recovery in 2H 2019 – Micron Technology, Inc. (NASDAQ: MU)



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Last month, Micron Technology, (MU) was downgraded Cowan ($ 45 value of the target) and Morgan Stanley ($ 32 value of the target), whereas the analyst Nomura Instinet David Wong initiated Micron lighting with a neutral rating and $ 45 price target.

At the same time, the lack of visibility on the market also affected MU stock through the reflex reaction to earnings management or other shares in the sector of technologies and supply chains. For example, the Compute and Networking Business Unit MU (in CNBU), which includes memory products sold in the data center, the client, graphics and network markets, accounted for 44% of total revenues in 1H FY 2019. This was up from 49% in 1H FY 2018. Weak data center financial results in Microsoft (MSFT), Xilinx (XLNX) and Intel (INTC), was a negative read across for MU, which was by 1.5% compared to April 26 Nvidia (NVDA), which receives 30% of the proceeds (without memory) of the data center, decreased by 4.72%.

I first tried to determine the demand for moving poor article 3 February 2019 under the name Alpha «Micron Technology: where the requirements Drivers"

Based on the guidance memory supplier SK Hynix (OTC: HXSCL) and capital expenditures spent on the memory of the cloud servers companies, decline in DRAM should end in 2H 2019 as expected. I presented preliminary data from April 1, 2019 Seeking article Alpha named «DRAM and NAND flash memory market in 2H 2019 Assuming that the CEO of Micron Technology to & # 39 is right." This article is trying to develop new evidence that demand drivers for DRAMs, which provides visibility of the turn.

Background on DRAM Forecasts

When you call Micron Technology, Q1 2019 earnings on December 18, 2018, CEO Sanjay Mehrotra said:

"Based on our current demand estimates, our DRAM bit shipments in the second fiscal quarter will decline sequentially, but more importantly, is likely to be flat down, compared to the same period an annual basis, and in line with a weak quarter for the memory industry and well below the long-term demand growth. This shows that the adjustment of inventory of our customers is in full swing. The ban weak macroeconomic conditions, we expect that our DRAM bit demand to grow sequentially in our third fiscal quarter Artal ".

Fiscal third quarter (end May 2019) the rotation demand growth in the discharge was regarded as the end memory decline. The following calls a month from Samsung Electronics and SK Hynix also pointed to the turnaround in 2H 2019.

The leadership Mehrotra, in the MU stock fell from a high of $ 62.62 on May 29, 2018 to $ 34.11 on the date of the call arrived, but almost immediately the shares began to recover, closing at $ 40.13 on March 20, 2019, Mu shortly before the Q3 earnings call. This quarterly growth of 17.6%.

In its Q2 2019 earnings call on March 20, 2019, CEO Mehrotra presented an update to its guidelines for DRAM bit growth, noting:

"Turning now to our long term DRAM industry. Since our last call came, DRAM prices eased more than expected. Our forecast demand in calendar 2019 was softened, led by a slightly higher level of customer inventory, reduce server demand in several OEM enterprise customers and worse-than-expected deficit of processors. We believe that macroeconomic uncertainty also contribute to variations in the purchasing behavior of some customers. However, as we said in our last call came, we expect DRAM supply bit to start increasing our financial the Q3, with increased growth in demand in the second half of calendar 2019, as most stocks of customers are likely to normalize by mid-year ".

Despite the confirmation that there will be a turnaround in the financial kah, MU stock increased by only 4.9% compared to the $ 40.13 to $ 42.10 on April 26 presented him only five weeks, and in the same period .

  • S & P 500 increased by 4.0%,
  • SOXX increased by 11.1%
  • Samsung Electronics (OTC: SSNLF) increased by 1.8%
  • SK Hynix increased by 11.5%.

Thus, in recent MU stock indicators it is in the same stadium as his peers.

cAPEX cloud

I mentioned earlier about the importance of IP data center, whether it is a memory chip by MU or logic circuits of NVDA. I discussed the MU and its cloud server business in need of a November 15 article, 2018 Alpha titled "How to benefit from Micron Technology Cloud server demand," I remarked,

  • Cloud capex slows down, but only after the stratospheric cost to the leading service providers in the past two years, nearly 50%, including 62% from the beginning of 2018 over the previous year Q1-Q3.
  • Although cloud capex spending is expected to slow in 2019, increased the number of DRAM to the server to reduce the impact of lower revenues for Micron Technology.
  • Opportunities for Micron Technology beyond 2019, there are not only memorable, but highly valued 3D XPOINT technology from Google to migrate to the chip.

Figure 1 shows the reduction in the cloud server capital investment costs for MSFT, Amazon (AMZN) and Facebook (FB) for 4Q2018 and 1Q2019, according to the report of Information Networks titled "Hot Isa: Research artificial intelligence (AI), 5G, images CMOS-sensor, and memory chips. " Investments carried out for these three companies fell by 17.3% on the previous quarter.

figure 1

Amy Hood – EVP and CFO of Microsoft noted in Q3 2019 earnings call, the company April 24, 2019:

«CapEx, our full-year outlook remains unchanged. Thus, we expect that the gradual increase in the dollar of capital expenditure in the 4th quarter as we continue to invest in order to meet growing customer demand. "

Dave Wehner, Facebook's chief financial officer said in the Q1 2019 earnings call, the company April 24, 2019:

"On CapEx manual, it's really just a better visibility about how to spend will come through. Large component data center CAPEX builds. This large complex projects, so the timing that spending, we just get better visibility on as the year progresses, but not a real change in outlook. We continue to invest heavily in the business. "

Both the company's server cloud show that capital expenditure spending should soon return to the track. Guided by the demand for server use SK chip & # 39 is starting to show a step ascent from 3Q 2019 Assuming that the three companies have to do to get back on track with capex spend, they are initially measured at the 2 nd quarter of 2019, and then CAPEX spend in the 2nd quarter of 2019 is expected to grow 2.6% compared to the 4th quarter of 2018 and 24.9% compared with the 2nd quarter of 2019, this increase may seem ambitious, but Q2 2018 capex spend for these three companies increased by 17.5% quarter on quarter, and yalichylasya by 54.4% yoy in 2018.

Figure 2

DRAM shipment growth

According to SK Hynix »April 25, 2019 report 1Q2019 earn:

"Demand is still slowing due to inventory correction and conservative consumer behavior from the server to the client. Income of the DRAM and SSD server is reduced because of the increase in ASP erosion applications associated with the server ".

For 1Q 2019, SK Hynix said DRAM shipments decreased by 8.0% quarter on quarter. On the basis of the company's management, we forecast DRAM shipments increased by 15% in 2Q, and another 20% in the 3rd quarter. DRAM supply for SK Hynix is ​​shown in Figure 3, along with the estimated shipments for Samsung Electronics on previous earnings and 1Q MU after his call to the recently arrived.

Figure 3

Takeaway investor

New financial data and guidance from SK Hynix and capex spending level application vendor cloud servers, 2H 2019 originally forecast for Micron Technology in its appeal in December 2018 profit seems to be correct.

Investors and traders should ignore any negative financial, received from colleagues and suppliers in the final round earning calls. They & # 39 is a lagging indicator. Furthermore, any negative guidance directly provided colleagues and suppliers is not correlated with MU and other memory companies. For example, memory revenue in 2017 increased by 61.5% compared to 11.7% for the logic of income. Memory has increased by 27.4% in 2018 compared to 6.9% for the logic.

Disclosures: I / we do not have positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and he expresses his own opinion. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article is devoted to one or more of the securities that are not traded on a major US stock exchange. Pay attention to the risks associated with these stocks.

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