Bank Of America Updates Memory Outlook After South Korea Visit

A visit to South Korea to meet with Samsung Electronics Co. Ltd SSNLF, Hynix and equipment vendors reinforced a Bank of America Merrill Lynch analyst's positive outlook for Micron Technology, Inc. MU and the memory market.

The Analyst

BofA's Simon Woo maintained a Buy rating on Micron with an unchanged $100 price target.

The Thesis

After visiting Korea for firsthand checks and conversations, Woo said he left with the following eight takeaways. (See the analyst's track record here.) 

• Samsung is seeing "production bottlenecks, especially for its new tech migration such as 1ynm DRAM.
• Capex remains conservative for wafer fabrication equipment, and incremental spending is mostly absorbed by shell fab construction, R&D and back-end facilities.
• The DRAM market is seeing low inventory levels of one to two weeks for chipmakers, and NAND inventories are falling back to four weeks.
• Average selling prices for DRAM remain stable, with no plans to cut 2019 ASP aggressively.
• A smaller price cut for NAND than previously expected is expected in the fourth quarter.
• The trade dispute between China and the U.S. will have a "low impact" on the sector.
• DRAM is seeing solid demand, with 30-40-percent bit growth.
• Companies are seeing record high profit that is sustainable due to ASP, cost and volume.

The Impact On Micron 

Woo's findings point to a "more favorable" outlook for Micron for multiple reasons, he said:

• Samsung's 2019 memory chip product growth rate should be lower in 2019 versus 2018, which bodes well for Micron.
• Hynix's 2019 capex and chip production looks to be "disciplined," a positive for Micron's share in DRAM.
• Micron should see "decent upside" from DRAM earnings on higher ASP, which should be sufficient to offset expectations for NAND ASP downside.

Price Action

Micron shares were up 2.22 percent at $46.06 at the time of publication Thursday. 

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Stifel's 5 Takeaways From Micron's Analyst Day