Here is more on Citi's call on Micron, but it includes a fair bit on NAND as well. Enough is here to see if the call proves to be even close to the mark. He is the one saying that people must get "draconian". NAND is going to "cash cost", the worst year since 2008, while DRAM will have the worst year since 2011. Pretty draconian, indeed. If he is accurate, we will see how different Micron has become with their cost cutting and streamlining, and whether or not TTID at the trough as it is at the peak. Just what will trough earnings be, which will give us a better handle on how to value the company.
"Citi Research
Memory Crash Getting Even Worse, No End
in Sight. NAND Going to Cash Cost.
Lowering Estimates. Reiterate Neutral.
Following checks during our recent Asia trip and downward memory price estimate revisions by our Korea analyst Peter Lee (see note) we are cutting estimates on Neutral-rated Micron due to lower DRAM and NAND ASP estimates.
DRAM/NAND crash getting worse
The memory crash continues to get worse given overcapacity and inventory build. We now expect NAND pricing to decline 45% and go to cash cost while DRAM pricing should decline 30% in 2019. As a result, we expect Micron to guide below Consensus when they report on December 18 and are lowering estimates and do not expect a bottom until 2Q19 at the earliest.
Worst NAND downturn this decade, going to cash cost
Pricing continues to be in free fall for NAND, and we now expect MU NAND pricing to decline 11% QoQ in 4Q18 after declining 17% QoQ in 3Q18. We expect NAND pricing to decline 45% in 2019, the worst YoY decline since 2008. We believe the overcapacity is so severe that NAND will decline to cash cost in 2019, which hasn’t happened in eight years.DRAM doesn’t look much better...
The DRAM downturn continues to accelerate due to inventory build, and we now expect MU DRAM pricing to decline 8% QoQ in 4Q18 and decline 30% in 2019 due to the inventory correction.
Cost reductions not keeping pace with ASP in C19
As shown in the following table, we expect MU NAND ASP/bit to decline 45% in C19 while we expect cost/bit to decline only 20%. We expect DRAM ASP/bit to decline 30% in C19 while we expect cost reductions to be only 15%.
Figure 1. Citi Assumptions for MU Bit Growth, ASP, and Cost
NAND Bit Growth NAND ASP /bit NAND Cost/bit
DRAM Bit Growth DRAM ASP/bit DRAM Cost/bit
Source: Citi Research
C18E C19E C20E
43% 45% 47% -19% -45% -22% -27% -20% -24%
18% 19% 22% 25% -30% -24% -10% -15% -5%
2019 to be the worst year for DRAM ASP since 2011 and worst for NAND ASP since 2008
The following table shows the annual changes in DRAM and NAND ASP since 2008. We estimate that 2019 will be the worst yearAs shown in the following figure, even with the 23% decline in NAND spot pricing since the recent peak and our Micron downgrade, NAND spot pricing remains at a 50% premium to the long term trend line. With more supply coming online in the 2H18 and 1H19 driven by massive capex in 2017 and 2018 we believe that NAND pricing will a minimum return to its long-term trend of 26% annual price reductions and could possible revert back to the long-term trend line.
Figure 5. Long-Term NAND Price per Gb Trend
$10.00 $1.00 $0.10 $0.01
Source: DRAM Exchange, Citi Research
NAND Price per GbLowering estimates – it’s time to get draconian
We are lowering our F19 revenue and EPS estimates from $29.5 billion and $10.30 to $27.8 billion and $9.10, respectively, lowering our F20 revenue and EPS estimates from $30.0 billion and $9.90 to $25.5 billion and $6.52 and lowering our F21 revenue and EPS estimates from $31.0 billion and $10.57 to $26.3 billion and $6.94 all due to lower DRAM and NAND pricing assumptions.
Maintain Neutral, $40 Price Target" |
