Undaunted by the impact of decling semiconductor orders, JP Morgan gives Micron an overweight rating and a target price of $80.
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$Micron Technology (MU.US)$ recently announced its Q3 results, while guidance for the next quarter is far below expectations due to increased headwinds in PC and smartphone demand coupled with inventory adjustments in the enterprise server value chain. Management said demand in China looks particularly weak, and the recent outbreak-related shutdown has not only impacted consumer sentiment/demand for PCs/smartphones, but also exacerbated an already tight electronics supply chain and caused some makers of consumer electronics to adjust inventories. JP Morgan gives Micron a price target of $80 and an overweight rating.
Key takeaways:
1. Cloud computing and data centers continue to dominate, fueling Q3 revenue growth
According to the study, industry demand growth is expected to be lower than its previous target in 2022, with DRAM (dynamic random access storage devices) slightly higher and NAND (flash memory storage devices) at 20%. Micron's F3Q22 revenue of $8.64 billion exceeded both consensus and JPMe, and despite weak PC/smartphone performance, the team sees continued strength in cloud computing and data centers, all of which grew strongly in Q3 and are expected to continue to grow in C2H22 and C23.
2. Weakness in the consumer electronics industry due to the macro environment, with Q4 revenue expected to decline
Micron's Q4 guidance for profit fell about 16% QoQ to $7.2 billion, well below the $9.1 billion general estimate and JP Morgan's $8.5 billion estimate, driven by weak demand for PCs and smartphones and related inventory drawdowns, coupled with general weakness in the China market.
Management said overall demand for consumer electronics is being negatively impacted by geopolitical and inflationary pressures, and the recent epidemic-related embargo has not only impacted consumer sentiment for PC/smartphone, but also exacerbated an already tight electronics supply chain and caused some PC/smartphone manufacturers to adjust inventories.
3. Fundamentals are stable in the medium term and will benefit from networking and cloud computing in the long term
JP Morgan's argument for the increase is based on memory fundamentals remaining stable over the medium term and management's focus on improving profitability by improving margins across business units. Longer term, the company's increasing product and end market diversification should reduce revenue/earnings volatility and allow the company to perform well in markets that require multiple types of storage.
JP Morgan expects Micron to benefit from long-term trends in mobile DRAM (dynamic random access memory), which should help it reduce volatility in commercial DRAM, and with the acquisition of Elpida, JP Morgan believes Micron will benefit from long-term trends in networking and cloud computing. New technologies, divestitures of non-core assets and cost-cutting efforts should help it improve gross margins and profitability in the coming quarters.
$Micron Technology (MU.US)$
$Micron Technology (MU.US)$
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$Micron Technology (MU.US)$