Last month, Cowen ($ 45) and Morgan Stanley ($ 32 target) Micron Technology (MU) were downgraded, while Nomura Instinet analyst David Wong downgraded to a neutral rating of $ 45 Reporting
At the same time, the market's lack of visibility has also impacted MU shares through tricky responses to profits or the bias of other stocks in the technology sector or supply chain. For example, MU's Compute and Networking Business Unit (CNBU), which owns storage products sold in the data center, client, graphics, and networking arenas, accounted for 44% of total revenue in the first half of 2019. This was a 49% decrease. in the first half of 2018. Data center weaknesses at Microsoft (MSFT), Xilinx (XLNX) and Intel (INTC) were negative for MU, down 1
For the first time, I tried to identify Demand Drivers in an Alpha article dated February 3, 2019 entitled "Micron Technology: Where Are The Demand Drivers?".
Based on instructions from memory provider SK Hynix (OTC: HXSCL) and the cloud server storage investment spend on memory, the decline in DRAM is expected to end in the second half of 2019. I have presented preliminary data in a Seeking Alpha article dated April 1, 2019 titled "The markets for DRAM and NAND storage in 2H 2019, assuming that the CEO of Micron Technology is right." This article attempts to come up with new evidence that requires Drivers for DRAMs, which is visibility for a trend reversal.
DRAM Predictive Background Information
Micron Technology's first quarterly earnings announcement on December 18, 2018 reported CEO Sanjay Mehrotra:
"Based on our current demand estimates, our DRAM bit broadcasts for the Tax business slowed down The second quarter will decline sequentially, but is likely to be flat to declining compared to last year. This represents a weak quarter for the storage industry, well below the long-term growth rate of demand. This shows that the stock adjustments of our customers have made good progress. We expect DRAM bit demand to increase sequentially in the third quarter of the third quarter.
The turnaround in bitbit demand growth in the third quarter (end of May 2019) was welcomed as the end to memory decline. Subsequent calls one month later from Samsung Electronics and SK Hynix also indicated a turnaround in 2H 2019.
Prior to Mehrotra's forecast, MU shares had dropped from a high of $ 62.62 on the day of the gain to $ 34.11 on May 29, 2018, but almost immediately the stock began to recover, closing on the 20th March 2019 at $ 40.13, just ahead of MU's third quarter earnings announcement. That is a growth of 17.6% in the first three months.
In his earnings statement for the second quarter of 2019, March 20, 2019, CEO Mehrotra announced an update to his guidance for DRAM bit growth and stated:
Outlook for the DRAM industry. Since our last earnings call, DRAM pricing has weakened more than expected. Our demand forecasts for the 2019 calendar have weakened somewhat, led by a slightly higher customer base, weaker server demand from multiple OEM corporate customers and an unexpectedly high CPU shortage. We believe that the macroeconomic uncertainty of some customers also contributes to a hesitant buying behavior. However, as we discussed at our recent earnings review, we continue to expect DRAM bit deliveries to increase in our third quarter. Demand will increase in the second half of calendar year 2019 as customers' inventories are expected to normalize by the middle of the year.
Despite confirmation that there will be a turnaround in the third quarter of the fiscal year, on April 26, MU's stock rose only 4.9% from $ 40.13 to $ 42.10. Admittedly, there were only five weeks and in the same period
- S & P 500 rose 4.0%. ,
- SOXX rose 11.1%,
- Samsung Electronics (OTC: SSNLF) gained 1.8%,
- SK Hynix gained 11.5%.
MU's recent share prices are in the same range as their peers.
I mentioned above the importance of data centers on ICs, whether memory chips from MU or logic chips from NVDA. I've discussed MU and its cloud server business in a Seeking Alpha article dated November 15, 2018 titled "How the Micron Technology Will Benefit from Cloud Server Demand" vendors for the past two years of nearly 50 %, including 62% YTD 2018 compared to the same quarter last year.
Chart 1 shows the decline in cloud server investment spend for MSFT, Amazon (AMZN) and Facebook (FB) for 4Q2018 and 1Q2019, according to The Information Network's report entitled "Hot ICs: A Market Analysis of Artificial Intelligence (AI), 5G, CMOS image sensors and memory chips. " Capex spending for these three companies fell 17.3% in QoQ.
Amy Hood – Microsoft's EVP & CFO listed in the Company's Q3 2019 earnings announcement on April 24, 2019:
"CapEx, our full year outlook remains unchanged. As a result, we expect investment in US dollars to increase in the fourth quarter as we continue to invest to meet growing customer demand.
Dave Wehner, Facebook's Chief Financial Officer, stated on April 24, 2019, in the company's first quarter earnings statement:
"The CapEx guidance is really all about better visibility of spending. A big component of CapEx's data center builds. These are large complex projects. Therefore, the timing of these expenditures will be more visible during the year, but no real changes in the outlook. We continue to invest heavily in the business. "
Both cloud server companies point out that investment spending should soon get back on track. SK believes that demand for server user chips will gradually increase from the third quarter of 2019. Assuming that the three companies are back on track for spending on investments originally scheduled for the second quarter of 2019, investment is expected to increase by 2.6% in the second quarter of 2019% over the fourth quarter of 2018 and 24.9% This growth may sound ambitious, but spending for the second quarter of 2018 for these three companies increased 17.5% in QoQ and increased 54.4% y / y in 2018
Report by SK Hynix on April 25, 2019 in the first quarter of 2009:
"Demand has been further slowed by the inventory correction and conservative purchasing behavior of the server customer. The revenue share of server DRAM and SSD decreased due to a larger ASP erosion of server applications. "
In the first quarter of 2019, SK Hynix reported that DRAM shipments fell 8.0% in the QoQ. Based on the corporate guidance, we expect DRAM shipments to increase by 15% in the second quarter and another 20% in the third quarter. DRAM shipments for SK Hynix are shown in Figure 3 along with the estimated deliveries for Samsung Electronics based on preliminary Q1 results and MU's latest earnings request.
New financial data and a guide from SK Hynix and Capex spending statements from cloud server vendors appear to suggest a 2H 2019, originally forecasted by Micron Technology in its December 2018 earnings release to be right.
Investors and traders need to overlook all the negative financials of peers and suppliers in this last round to earn calls. These are delayed indicators. Even negative recommendations from colleagues and suppliers do not directly correlate with MU and other storage companies. For example, storage revenue increased 61.5% in 2017, compared to 11.7% for Logic revenue. Storage increased by 27.4% in 2018, compared to 6.9% for Logic.
Disclosure: I have no positions in the named shares and I have no plans to take positions within the next 72 hours. I wrote this article myself, and it expresses my own opinion. I can not get any compensation for it (except from Seeking Alpha). I have no business relationship with a company whose shares are mentioned in this article.
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