Why Some Analysts Counter Bill Joy’s Take on Micron
Sun Microsystems co-founder Bill Joy is bullish on Micron (MU), as he believes that DRAM1 demand could increase significantly with the advent of cloud computing, AI (artificial intelligence), and AR/VR (augmented and virtual reality) applications on high-end smartphones.
Joy offered the example of Apple’s (AAPL) iPhone. The AI and AR/VR applications would boost memory content to more than 10 GB (gigabyte) per device from its current memory content of 2 GB.
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Joy stated that as the node shrinks, it would be more difficult and expensive for DRAM manufacturers to increase production. Plus, some DRAM manufacturers would maintain supply discipline to remain profitable.
Although Joy’s arguments are well-accepted in the industry, what was debatable was his conclusion that the DRAM market would no longer see the past cyclicality arising from oversupply and demand fluctuations.
Anand Srinivasan’s opposing view of Micron
According to a September 29, 2017, article in The Washington Post, Bloomberg Intelligence analyst Anand Srinivasan said, “Participants look very rational in tight memory markets like this one, but that can change.”
Historically, manufacturers find it difficult to resist the urge to manufacture more DRAM chips in an efficient manner. For example, SK Hynix is investing in DRAM. If Samsung (SSNLF) decides to boost its DRAM capacity, the whole supply condition would reverse. While the risk of oversupply has decreased, it still exists.
Evercore ISI: C.J. Muse
Evercore ISI analyst C.J. Muse took NVIDIA’s (NVDA) investors by storm in September by releasing a highly bullish price target of $250, up from his previous target of $180. He recently released a bullish price target of $50 for Micron. Whether he is concerned about the current state of the DRAM market, he seems positive that the DRAM uptrend could be sustainable through calendar 2018.
DRAM demand is increasing as more devices need memory to quickly store and process data. The key issue is the supply. DRAM capex increased 15%–20% as node shrinks have made DRAM manufacturing more capital-intensive.
DRAM manufacturers are not increasing DRAM capacity. Instead, they are using the cash generated from DRAM sales to invest in the faster-growing 3D NAND (negative AND).
Deutsche Bank: Sidney Ho
Deutsche Bank analyst Sidney Ho reiterates Muse’s comments that supply discipline by manufacturers would help extend the uptrend. Ho increased his price target for Micron from $37 to $42, as he expects the company’s fiscal 1Q18 earnings to beat the consensus estimate.
Ho expects the ASP (average selling price) for DRAM and NAND to increase 2%–3% sequentially in calendar 4Q17, compared with the previous estimate of a 4%–5% sequential decline.
All analysts are optimistic about a favorable DRAM environment in the short term and are therefore bullish on Micron. Next, we’ll look at other factors that have made analysts bullish on Micron.
- dynamic random access memory ↩