Analysts have mixed outlook for Micron stock

Micron Technology Inc. stock traded near its one-year low heading into the company’s Winter Analyst Conference Feb. 9 at Sun Valley Resort.

Analysts give mixed prospects for Micron, which closed at $12.97 Feb. 7. The one-year low, $12.79, came Jan. 31. September produced the one-year high, $18.65.

The average one-year target was $17.31 among 14 analysts that Thomson / First Call surveyed, according to Yahoo Finance.

Jefferies & Co. on Feb. 5 downgraded Micron from buy to hold. Credit Suisse on Jan. 24 upgraded the company from neutral to outperform. Goldman Sachs changed its rating from sell to neutral Jan. 3. December saw three downgrades, two upgrades, and Nollenberger Capital initiating coverage with a buy.

“The biggest concern near term is that there’s too much supply coming onto the market in both DRAM and NAND,” Credit Suisse managing Director Michael Masdea said.

Micron makes dynamic random-access memory chips common in computers, complementary metal oxide semiconductor image sensors, and – with help from Intel Corp. – is diversifying into NAND flash memory that is used in hand-held devices and has prospects for larger applications.
Prices for NAND chips fell 25 percent last quarter and could drop by more than that this quarter, Masdea said. But demand tends to increase as prices fall, as more people buy hand-held technology, he said.
DRAM prices also fell last year, though not as much as NAND prices dropped. Masdea said most of the DRAM decline came in the spot market, whereas most of Micron’s business is in the contract market.
Micron is priced near book value, he said.
“We’ve been waiting for the bad news to come out, and a lot of the bad news has come out,” he said. “So we lowered our estimates but upgraded the stock.”
A number of competitors talked about increasing supply more than normal this year, which has dragged semiconductor stock prices, Masdea said.
Jefferies & Co. analyst John Lau, in downgrading Micron and cutting his target price from $21 to $15, said oversupply is the main issue. He also cited seasonality.
“We continue to be impressed by Micron’s efforts to significantly diversify their products to multiple end markets,” he wrote in a research note as reported by the Associated Press. “However, the short-term impact of steeply declining memory prices raises our concern for the stock in the near term.”
Masdea said that while diversifying into NAND should reduce Micron’s volatility long-term, the strategy limited the stock’s gain from a strong DRAM price environment last year.
Intel sees a major opportunity in NAND, and can help Micron become a major player fairly quickly, he said.
Would Intel consider buying Micron?
“It’s very unlikely,” Masdea said. “Intel is not eager to get back into the memory business.”
Would Micron be sold to another entity?
Masdea said it’s unlikely. A major competitor in the memory business would rather take market share and avoid manufacturing compatibility challenges, he said. Non-memory companies aren’t excited about getting into the memory business, and the industry is not a great fit for a private equity group, he said.
“That’s always a possibility,” he said of a private equity buyout. “However, when most private equity groups take out a company, they lever it up with a substantial portion of debt. The challenge is that it’s a commodity, with more volatility, which means there is some risk to cash flow. That presents a decent risk to the leverage used for private equity.”
Semico Research Corp. Vice President Bob Merritt said the partnership with Intel is positive for Micron.
“Micron has historically specialized in very efficient manufacture of memory technology, and Intel brings some additional technology and some investment capital – and is still the largest semiconductor manufacturer,” he said.
Whether Micron moves some capacity away from Boise depends on utilization rates in Boise, Merritt said.
Masdea said Micron has done well at keeping costs down despite locating production in some higher-cost areas of the world. “A more important piece of the cost structure is your design teams, and what kind of (decreasing) die sizes you can get,” he said.
“All semiconductor manufacturers have continuing cost reductions, which are anticipated to pretty much go on forever,” Jim Handy of Objective Analysis said. “The competitive strength of Micron is managing those cost reductions better than their competition.”
Handy doesn’t anticipate an imminent Micron push to reduce staffing costs.
“There are always times when you consider that,” he said. “Semiconductor manufacturing can be done anywhere. All you need is electricity, water and transportation.”
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