Risk Abhinav Davuluri, Sr. Eq. Analyst, 19 December 2017

As a subset of the broader semiconductor industry, the memory space is inherently cyclical.

The commoditized DRAM and NAND markets create volatile pricing along with supply and demand imbalances that create challenging periods for firms like Micron.

Another major risk is the strong competition from the likes of Samsung, Hynix, and Toshiba, which may be able to develop technologically superior memory solutions than those of Micron, leading to stretches of underperformance where the latter is unable to adequately invest to bridge product portfolio gaps.

After taking into account these factors, we assign a very high uncertainty rating to Micron.

For fiscal 2018, we believe Micron will enjoy revenue growth of 31%.

Thereafter, we believe Micron’s annual sales growth will slow, with midcycle operating margins in the mid teens.

Given fluctuations in supply and demand cycles, we expect swings in top- and bottom-line performance and accordingly anticipate the firm’s long-term profitability will be limited by the cyclical, commodity-like nature of the memory industry.