There seems to be no end in sight for the decline in DRAM prices. DRAM constitutes approximately 54% of the total revenue. The shift from PCs to mobiles is adversely affecting the demand for DRAMs, and the management cannot do much about it. This is a technological shift, and the company should guide its focus according to the changing times, or perish.
Micron: The $10 Floor Cannot Hold For Long - Micron Technology Inc. (NASDAQ:MU) | Seeking Alpha
First, a basic overview: Hynix is one of Micron's main competitors for both DRAM and NAND (two different types of memory). As most investors are probably aware, Micron's two biggest business segments are DRAM (64%) and NAND (33%). For DRAM, Hynix is one of two major competitors of Micron, with the other competitor being Samsung (OTC:SSNLF). Currently, memory (particularly DRAM) is very oversupplied, which is especially problematic for Micron, given that they have the highest cost structure. Back to the earnings call - for one, Hynix indicated that they expect DRAM and NAND shipments to grow by roughly 15% and 30%, respectively in Q2, but still expect ASPs to decrease, although not as severely as they have been previously (14% Q/Q for Hynix). For the full year, they are actually projecting mid 20% growth for DRAM and mid to high 30% growth for NAND.
The market also is worried about the expensive $1.25 billion debt offering at 7.5%, which will eat into future earnings. Investors were shocked to see the debt being raised at such a high rate given that there is abundance of cheap capital.
Micron: The $10 Floor Cannot Hold For Long - Micron Technology Inc. (NASDAQ:MU) | Seeking Alpha
The Company generated operating cash flow of $763 million during the second quarter and we ended the quarter with cash and marketable investments of approximately $5.1 billion." - Ernie Maddock, Micron's Q2 2016 earnings call transcrip
A couple of recent upgrades for Micron came from Raymond James and Brean Capital, along with price targets of $17 and $14, respectively. On the other side, Nomura and Susquehanna downgraded Micron in March. Nomura dropped its price target to just $8 per share, while Susquehanna dropped its target to $10. Despite the wide gap in price targets, there's really only one difference between the bullish analysts and the bearish analysts. The bullish analysts believe that the DRAM industry has fundamentally changed because of consolidation. There are now only three major DRAM manufacturers, and the idea is that these companies will attempt to maximize profits instead of gunning for market share. Supply-driven cycles may still occur, but they won't be as severe compared to the past.
Why Analysts Disagree About Micron Technology Inc. -- The Motley Fool
Combine Samsung's aggressiveness, Micron's unwillingness to cut production, continued weak demand for PCs, and the first quarterly decline in global smartphone shipments, and you have the makings of a deep slump in the memory-chip market. The bullish analysts still believe that the effects of consolidation will ultimately win out, but nearly everything is pointing in the opposite direction. So far, I don't see any evidence at all that the industry has fundamentally changed.
Why Analysts Disagree About Micron Technology Inc. -- The Motley Fool
The oversupply has started eating into Micron's mobile business. The mobile segment posted a $21 million operating loss in the second quarter, compared to a $262 million operating profit a year ago. Overall, Micron reported a net loss in the second quarter of $97 million compared to a net gain of $934 million in the same period a year ago. Red ink of this magnitude makes Micron a fundamentally weak equity.
Micron Technology Has Had a Rough 2016 - Pg.2 - TheStreet
Micron Technology operates in the semiconductors space across four segments: Computer and Networking Business Unit, Mobile Business Unit, Storage Business Unit and Embedded Business Unit. Micron's main products are DRAM (dynamic random-access memory) and NAND (negative-AND gate) memory chips, which are mainly used in personal computers (PCs). Apart from Micron, Samsung and SK Hynix are the other two companies who make DRAM and NAND chips. However, with the advent of tablet computers and smartphones, the PC market has taken a hit. Mobile computing is now more important as consumers rely increasingly on these devices. Tablets and smartphones also require these chips, but after a period of prolific growth, this market has slowed.
Micron Technology Has Had a Rough 2016 - TheStreet
DRAMeXchange expects the DRAM space to maintain profitability, as “overall production capacity has not increased significantly” even though oversupply still persists.
Downward Trend in DRAM Prices Expected to Continue in 2016 - Market Realist