Why Macquarie Is Downgrading Micron

Macquarie’s Deepon Nag believes that while the DRAM industry has the potential to generate sustainably higher cross cyclical profitability than in the past, there do not appear to be any significant catalysts for Micron Technology, Inc. MU over the next several quarters.

Nag downgraded the rating on the company to Neutral, while lowering the price target from $14 to $12.

DRAM Issues

“Despite MU’s commentary that DRAM supply growth will be limited over the next few years, our global memory team continues to be cautious on DRAM into CY16,” the analyst said, explaining that neither Samsung nor Hynix were likely to cede market share to Micron Technology.

In addition, recent reviews by the CFIUS on the Unisplendor/Western Digital Corp WDC agreement are expected to make potential Chinese investments in Micron Technology less likely.

Pricing Pressured

On the other hand, while the company’s NAND bit shipments increased 11 percent quarter on quarter, ASPs declined 15 percent quarter on quarter. Also, both DRAM bit shipments and ASPs declined, 9 percent and 10 percent, respectively, quarter on quarter.

“The company stated that the PC market continued to weigh on DRAM pricing and reiterated its expectation that MU would grow DRAM bits above the market in CY16, and NAND bits below the market in CY16,” according to the Macquarie report.

Gross margins are expected to decline in FY16, having already declined from 1Q to 2Q, driven by pricing and mix.

The revenue and EPS estimates for FY16 and FY17 have been lowered.