- Citigroup was out with an important call late Friday saying they were too early in their upgrade of Micron (NYSE:MU) (March '07). Inventory build by module houses caught them by surprise and drove 2H07 pricing down well beyond expectations. However, with Micron shares below book value, DRAM prices well below 200mm cash cost (and at 300mm cash cost), and signs of a rationalizing supply base now evident, the firm believes the shares are now set up for appreciation and they anticipate a more favorable stance from Wall Street in the near/medium term. The firm therefore advises investors to build positions in preparation for a better fundamental backdrop in 1H08.
Led by 200mm decommissioning, Citi's expectation of an easing of excess DRAM supply in 1H08 is increasingly likely. With rationalized capital spending, bit growth in 2008 is expected to slow dramatically from 2007 (45%-55% growth from 70%-90%). F1Q08 revenue/EPS estimates go to $1,418M/($0.27) from $1,509M/($0.18) previously.
Micron shares are trading at 0.96x firm's lowest estimated book valuation. When applying a
comparable multiple to its CMOS image sensor business, the memory valuation is even lower at 0.87 book. Maintains Buy and $17 tgt.
Notablecalls: First of all, I think this call makes sense. It's always the darkest before the dawn. When DRAM prices go below cash cost, supply starts to rationalize. Soon we are going to hear about DRAM makers pulling back their output and capexes (already happening) and after that some players will leave the game. This will help the industry out of its current slump. Do note that Micron is currently only 50% DRAM, with NAND and CMOS representing the other half.
Also note that last week, a buyer picked up close to 40,000 MU calls.
Considering Citi's mea culpa call on MU was issued around Friday afternoon, I suspect it didn't get the attention it deserved. Therefore, I think it would be prudent to assume the stock will see further buy interest today as traders return from the weekend.
Led by 200mm decommissioning, Citi's expectation of an easing of excess DRAM supply in 1H08 is increasingly likely. With rationalized capital spending, bit growth in 2008 is expected to slow dramatically from 2007 (45%-55% growth from 70%-90%). F1Q08 revenue/EPS estimates go to $1,418M/($0.27) from $1,509M/($0.18) previously.
Micron shares are trading at 0.96x firm's lowest estimated book valuation. When applying a
comparable multiple to its CMOS image sensor business, the memory valuation is even lower at 0.87 book. Maintains Buy and $17 tgt.
Notablecalls: First of all, I think this call makes sense. It's always the darkest before the dawn. When DRAM prices go below cash cost, supply starts to rationalize. Soon we are going to hear about DRAM makers pulling back their output and capexes (already happening) and after that some players will leave the game. This will help the industry out of its current slump. Do note that Micron is currently only 50% DRAM, with NAND and CMOS representing the other half.
Also note that last week, a buyer picked up close to 40,000 MU calls.
Considering Citi's mea culpa call on MU was issued around Friday afternoon, I suspect it didn't get the attention it deserved. Therefore, I think it would be prudent to assume the stock will see further buy interest today as traders return from the weekend.
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