| | | report on Micron from Merrill--the short story is, most of what has been written by the doom and gloom analysts over the past month is wrong, according to him.
What we learned: disciplined supply and pricing strategies
We met Samsung, Hynix and equipment vendors at our recent Korea conference. What we
learned for memory: (1) production bottlenecks, particularly for Samsung’s new tech
migration (1ynm Dynamic Access Random Memory (DRAM) vs 1xnm, 92-layer 3D NAND vs
64-layer, EUV litho vs multi-patterning, etc); (2) conservative capex (for wafer fabrication
equipment; incremental spending mostly absorbed by shell fab construction, R&D and
backend facilities); (3) low inventories for DRAM (only 1-2 weeks for chipmakers vs normal 3-
4 weeks; even NAND falling back to 4 weeks); (4) quite stable DRAM ASP (slightly up in
3Q18, just marginal correction in 4Q; no plan to cut 2019 ASP aggressively); (5) smaller
NAND price cut for 4Q and after vs 3Q (profit focused); (6) low impact from US-China trade
war (chip orders unchanged); (7) solid demand for server DRAM (30-40% bit growth); and (8)
record high profit sustainable due to ASP, cost and volume.
Implications for Micron: favorable competitive landscape
The competitive landscape looks more favorable for Micron. Samsung’s 2019 DRAM and
NAND supply growth will likely be in the high teens (17-18% YoY vs demand 20% range)
and low 30% (vs near 40%), respectively. Hynix’s management also seems to target
industry-average supply growth (DRAM 20%, NAND 40%) despite record high capex in
2018 (YoY incremental spending mostly used for non-WFE, in our view). Against this
backdrop, we also assume above-trend ASP even for 2019 (eg, chip-price decline not
much larger than cost reduction), thus we think high margins should be sustainable.
Micron 4Q results preview: DRAM offsets NAND risk
We still see decent upside for Micron’s DRAM earnings on higher ASP (only +1% QoQ
assumed for August-end 4Q FY18 results (due 21 September). This should offset NAND
ASP downside (10% QoQ decline assumed for 4Q, but low to mid-teens possible).
Overall, we still see record high/up-cycle 4Q sales ($8.4bn), GM (60%), and EPS ($3. |
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