During the last month, Micron Technology (MU) has been downgraded to Cowen (priced at $ 45) and Morgan Stanley (priced at $ 32), while Nomura Instinet analyst David Wong initiated a Micron with a neutral rating and the target price is $ 45.
At the same time, the lack of visibility in the market also affected the MU stocks through a knee-jerk reaction or the management of other stocks in the technology sector or supply chain. For example, the MU's Compute and Networking Business Unit (CNBU), which includes memory products sold to datacenters, clients, graphics, and networking networks, accounted for 44% of total revenue in the first half of 201
I first tried to identify drivers request in February 3, 2019 I am looking for an Alpha article called "Micron Technology: Where Are Drivers Requirements?"
Based on the recommendations of the supplier of memory SK Hynix (OTC: HXSCL) and the cost of memory for companies from cloud servers, the decline in DRAM should end in 2H 2019, as expected. I provided preliminary data in the article "Looking Alpha" of April 1, 2019 "DRAM and NAND Markets in the 2nd Quarter of 2019 if Micron Technology's CEO is right". This article tries to develop new proofs that require drivers for DRAM that provides visibility for
Prerequisites for DRAM forecasting
In the first quarter of 2019, Micron Technology opens up to December 18, 2018, General Director Sanjay Mehrotra said:
The second quarter will be decreasing consistently, but more importantly, it is likely to be equal to a year-on-year decline, and is consistent with the weak quarter for the memory industry and much lower than long-term demand growth. This suggests that the stock adjustments of our customers are in full swing. By forbidding weak macroeconomic conditions, we expect our DRAM demand to grow consistently in our fiscal quarter. "
The fiscal third quarter (end of May 2019) the deterioration of the growth of bitumen was approved as the end of the decline in memory. Subsequent calls within a month Samsung Electronics and SK Hynix also pointed to a turn in 2H 2019.
In the direction of Mehrotra, MU shares fell from a high level of $ 62.62 on May 29, 2018 to $ 34.11 on the date of call earnings, but almost immediately the stock began to recover, closing at $ 40.13 on March 20, 2019, only before the Q3 earnings call in MU. This is a 17.6% increase in the three-month period
In its call for earnings for the 2nd quarter of 2019, on March 20, 2019, the CEO of Mechrotra provided updates to his leadership for the growth of some DRAMs, stating:
Prospects for the DRAM industry. Since our last profit challenge, DRAM cost is weakened more than expected. Our forecast for demand for the 2019 calendar has been tallied, with a slightly higher level of client inventory, a weakening of server demand across several OEMs, and a worse CPU deficiency. We believe that macroeconomic uncertainty also encourages buyers to fluctuate. However, as we discussed in our past call for profit, we still expect that in this fiscal quarter, an increase in DRAM bits will begin, and demand growth in the second half of the 2019 calendar year, as most commodity stocks are likely to normalize by the middle of the year.
Despite confirmation of a turnaround in the fiscal 3rd quarter, MU shares rose by only 4.9% from $ 40.13 to $ 42.10 on April 26. Taking into account only about forty weeks, and in the same period,
- S & P 500 increased by 4.0%. ,
- SOXX increased by 11.1%,
- Samsung Electronics (OTC: SSNLF) increased by 1.8%,
- SK Hynix increased by 11.5%.
Thus, the recent figures for MU stocks are in the same state as its counterparts.
I have already mentioned the importance of IP data centers, whether they are MU chipsets or logic chips from NVDA. I discussed MU and his cloud-based business in Article 15 Searching Alpha entitled "How Micron Wins From the Cloud Server Request". I noticed:
- Cloud Capex slows down, but only after the stratosphere, spent on the highest service provider, over the past two years is almost 50%, including from the beginning of the year 2018 62% more than in the 1 st quarter last year.
- While cloud costs are expected to slow down in 2019, increasing the number of DRAMs on the server will reduce the impact of lower revenue
- Micron technology opportunities after 2019 exist not only with DRAM but also with the high-promoted 3D XPoint technology thanks to the migration of Google to the chip.
Chart 1 shows a decrease in cloud server costs for MSFT, Amazon (AMZN) and Facebook (FB) for 4Q2018 and 1Q2019, according to a report by the Information Network entitled "Hot IPs: AI Market Analysis, 5G, CMOS image sensors and memory chips. " Capital expenditures for these three companies dropped by 17.3% to QoQ
Amy Hood – EVP and Microsoft Chief Financial Officer noted in the release of the company in the third quarter of 2019 on April 24, 2019:
"CapEx, our full year forecast remains unchanged. Therefore, we expect a consistent increase in capital expenditures in the fourth quarter, when we continue to invest in order to meet the growing demand of our customers. "
Dave Vener, Chief Financial Officer of Facebook, noted in a company report for the first quarter of 2019:
" At CapEx's leadership, it's really just about the best visibility of how costs will go. It forms a large component of the CapEx data center. These are great complex projects, so the timing of these costs, we just get better visibility, as the year progresses, but no real changes in the outlook. We continue to invest heavily in business. "
Both companies from cloud servers point out that capital costs will soon come back. Guided by the fact that the demand for server chip starts to show a gradual rise from Q3 2019. Assuming that the three companies are returning along the path to capital expenditures that they originally estimated for the 2nd quarter of 2019, capital expenditures in the 2nd quarter of 2019 should increase by 2.6 This growth may seem ambitious, but the costs for these capital in the 2nd quarter of 2018 increased by 17.5% in the first quarter and increased by 54.4% in 2018.
According to the SK Hynix report of April 25, 2019, 1Q2019:
"Demand reduction continued due to inventory correction and conservative customer behavior from the client server. The revenue side of the DRAM and SSD server has decreased because of the greater erosion of ASP server applications. "
During Q1 2019, SK Hynix reported that DRAM shipments dropped by 8.0% for the quarter. Based on the company's management, we predict that DRAM shipments will increase by 15% in the second quarter and another 20% in the third quarter. The shipments of DRAMs for SK Hynix are illustrated in Chart 3, along with estimated shipments for Samsung Electronics based on previous earnings for Q1, and for MUs after the last revenue call.
The manual from SK Hynix and Capital Cost Expenditures for cloud server suppliers, 2H 2019, is initially predicted by Micron Technology in its call for profit for December 2018.
Investors and traders need to skip any negative finances coming from colleagues and suppliers in this last round of earnings calls. These are lagging indicators. In addition, any negative guidance provided by colleagues and suppliers does not directly correlate with MCs and other companies with memory. For example, revenues from memory increased by 61.5% in 2017 compared to 11.7% for Logic revenues. The figure increased by 27.4% in 2018 compared to 6.9% for Logic
Disclosure: I / we do not have positions in any of the mentioned shares and we do not plan to initiate any positions within the next 72 hours. This article itself, and it expresses my own thoughts. I do not receive compensation for it (except for Seeking Alpha). I do not have any business relationship with any company whose shares are mentioned in this article.
Editor's Note: This article discusses one or more securities that are not traded on a major US exchange. Pay attention to the risks associated with these stocks.