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Micron Misses (MU) – No surprise – Needs focus on NAND/XPoint not diving DRAM

Micron Misses (MU) – No surprise – Needs focus on NAND/XPoint not diving DRAM
by Robert Maire on 12-26-2015 at 12:00 pm

 We are surprised that everyone is surprised at DRAM, DRAM oversupply/weak demand is systemic so Micron needs to focus on NAND/XPoint.We find it somewhat amusing that many “analysts” were caught off guard about the weakness in Microns results and poor guidance. Why would you think DRAM would be OK???…Have you paid attention to prices?

Micron had a more or less in line quarter but guided sharply lower for fiscal Q2 ending February, sending the stock down 5%- based on DRAM issues

Anybody who has been watching Semis for more than a few years should know that calendar Q1 is always the weakest quarter for memory pricing. We are in the postpartum depression after the big ramp for the holidays coupled with several weeks lost business due to Chinese New Years. DRAM has historically under performed in calendar Q1 and this season has been weak to start off with, so why would analysts or investors think that some miracle would happen? Look at past pricing…history repeats itself…and seasonality is stronger than ever given the clockwork-like release of Apple’s iPhone every fall.

Demand/pricing is still weak…
DRAM is and has always been the ultimate commodity in the semiconductor space. While true that there are many variants of DRAM these days the reality is that it acts like a commodity because it is one.
It is a simple, standard stupid balance of supply and demand that governs pricing and right now demand is not all that great while supply is. How you could conclude that this would lead to good results for a DRAM maker is beyond me.

PCs and Windows 10 didn’t help and smartphones/tablets aren’t either…

In the bad old days every new version of Windows significantly increased the amount of DRAM needed as the “bloatware” increased. This is certainly not the case with Windows 10. Nor did we see an uptick in sales for PCs that could have driven DRAM so the only other significant place would come from mobile devices increasing DRAM needs and it doesn’t appear to be the case either. So where is the demand to suck up the extra capacity that has come on line over the last year or so???

Will Saudi Arabia increase oil production to combat low prices???
We don’t think so….So the odds of Micron dumping more CAPEX into DRAM capacity is also foolish. Maybe I would put money into reducing production costs to try to prop up margins but increasing capacity is throwing fuel on the fire sale. Sure, moving to the next technology node will help costs but without a significant change in demand its going to be tough sledding going forward.

NAND and XPoint are where its at…
NAND seems to be the ultimate price elastic commodity, the cheaper it gets, the more we buy. For SSDs, smartphones, tablets etc; I keep buying bigger thumb drives and SD cards. In the NAND market at least Micron has a chance to see more progress and if it can ramp the 3D NAND product, should have a market to sell into to, which while constantly falling does have increasing demand to limit the downward trajectory.

XPoint is the real differentiated product…
If we were Micron management, we would be focusing our attention and spending on XPoint which holds the promise of differentiation and enhanced technology versus the commodity DRAM and NAND markets.XPoint is a potential winner and needs to be ramped ASAP. It could command better pricing and margins with less or no competition. It is a long term solution to being stuck in the cyclical roller coaster of commodity product price swings.

Waiting on NAND and XPoint but with a floor in the stock

We would be hard pressed to put money to work in shares of Micron near term. We likely will have some time before we see positive results from NAND or XPoint, as the company indicated the second half. We do think there is a floor under the shares as if they get too cheap they get a bulls eye painted on their back and become an M&A target. Perhaps if the shares went down too much Intel could notice after Altera is done. We don’t expect China to come back in any time soon….

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