Tuesday, November 14, 2006

Calls of Note Part 2

-Bear Stearns notes they believe expectations for Micron (NYSE:MU) have turned overly negative recently particularly with regards to its earnings capability over the next two quarters, and they believe a resetting of these expectations should be a near-term catalyst for the stock. Therefore, the firm sees a short-term buying opportunity for Micron shares.

Although they remain guarded on their full-year 2007 expectation for DRAM supply-demand dynamics, DDR2 original brand chips remain in tight supply with inventory virtually non-existent in the supply chain. DRAM pricing continues to be firm near-term and the firm thinks price declines should be less than seasonal in the early part of C1Q07 fuelled by upgrades due to Vista, though some minimal price declines would be expected from late November.

The street was disappointed with Micron's minimal gross margin increase in the Aug-Q, as the company clearly did not see the full benefit of the improved pricing environment and did not have any meaningful cost reduction last quarter. The DRAM pricing environment has clearly improved further in the Nov-Q. Bear is raising their Nov-Q and Feb-Q estimates for Micron, based primarily on better pricing and greater cost reduction respectively. For the Nov-Q, they are increasing revenue estimate from $1,672M (+22% QoQ) to $1,714M (+25% QoQ), above consensus of $1,646M (+20% QoQ), GM from 27.2% to 28.3%, and EPS from $0.18 to $0.22, above consensus of $0.20. Feb-Q EPS goes from $0.16 to $0.19.

Notablecalls: I have been negative on MU since the stock was above $18 in September. Goldman called it last time and I think Bear Stearns may be on right tracks this time. I'm not expecting an instant rally but rather a steady move upward in the coming weeks. I was impressed by the comments on DDR2 inventory being virtually non-existent ahead of important qtr. Nice job, Bear!

1 comment:

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