Analysts: Micron's Buyout of Joint Flash Venture With Intel A Long-Term Positive

Micron Technology, Inc. MU announced its intention Thursday to buy out partner Intel Corporation INTC's stake in their IM Flash Technologies joint venture by agreeing to pay $1.5 billion in cash when the transaction closes. 

Micron can begin to exercise the call option to buy the stake Jan. 1, 2019, with the closing occurring six to 12 months after the date the company exercises the call.

The Analysts

• Wells Fargo Securities analyst Aaron Rakers maintained an Outperform rating on  Micron with a $63 price target.
• Bank of America Merrill Lynch analyst Simon Woo maintained a Buy rating and $85 price target.
• Credit Suisse analyst John Pitzer maintained an Outperform rating and $90 price target.
• KeyBanc Capital Markets analyst Weston Twigg maintained an Overweight rating and $73 price target. 

KeyBanc Sees Benefits For Micron

The buyout is a positive move for Micron, which stands to obtain a valuable fab asset, a skilled workforce and expandable 3-D Xpoint production capacity, KeyBanc's Twigg said in a Thursday note.

All this comes for $1.5 billion in cash while reducing the joint venture's debt to zero, the analyst said. 

Twigg sees the move as increasing the likelihood of a successful Xpoint production ramp for Micron in 2020.

For Intel, the sale is relatively neutral, with the company now likely to accelerate the production of 3-D Xpoint at its Dalian NAND facility, the analyst said. Intel will continue to be supplied with the 3-D Xpoint wafers up to a year after the deal closes, he said. close.

Wells Fargo: Buyout A Long-Term Financial Positive 

Although the buyout of the joint venture has no near-term financial model impact, it is a long-term positive for four reasons, Wells Fargo's Rakers said in a Thursday note: 

 Micron will pay $1.5 billion compared to the $6-billion total investment in the Lehi, Utah facility.

The deal will help Micron reduce its current 100-basis point impact from underutilization of the Lehi fab. 

The deal as well as the planned ramp of 3-D Xpoint does not change the company's capex outlook.

The transaction gives the company full flexibility in product development of next-gen tech.

BofA: Deal Enhances Revenues By 5-10%

Full ownership of the flash joint venture is likely to enhance Micron's revenues by 5-10 percent in 2020-21, or by $2-3 billion, BofA's Woo said in a Friday note.

BofA's Buy rating on Micron shares is predicated on low multiples, high free cash flow yield, financial deleveraging and shareholder returns, the analyst said. 

Woo said he expects good Q3 results and cautiously optimistic guidance from Asian chipmakers for the rest of the month.

Credit Suisse: 2019 Impact Unlikely

The expected IM Flash Technologies transaction is unlikely to meaningfully impact Micron's overall financial results in 2019 and its capex target of $10.5 billion for the year, Credit Suisse's Pitzer said in a Thursday note. 

Owning the whole business will improve revenue and margins is at least neutral in terms of return on invested capital, the analyst said. 

With the deal to supply wafers to Intel for up to a year after the close, Micron is not incurring incremental capacity risk until 2021, he said. 

The Price Action

Micron shares have been flat year-to-date. The stock was down 0.63 percent at $41.04 at the time of publication Friday. 

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