Shares of Micron Technology (MU) are up 86 cents, almost 16%, at $6.40 despite the company last night delivering a much-deeper-than-expected Q1 loss, perhaps because investors now believe the worst is over for the company.
That’s certainly the view of Wedbush Securities’s Betsy Van Hees, who this morning raised her rating on the stock to Outperform from Neutral, and raised her price target a buck to $8, writing that the state of DRAM, “which has been the biggest drag on Micron’s profitability, has finally reached a bottom here in fiscal Q2 (February), likely returning to profitability in fiscal Q3.”
During last night’s conference call following results, CEO Steve Appleton told analysts the DRAM situation finally seemed to stabilize:
The new DRAM supply continues to be muted compared to last cycles. If you looked at any of the media announcements lately, you will know that some of the capacity has been taken off-line. I think we’re hopeful, and I think we believe that the supply/demand equation, as we move into the next year, should be pretty good, particularly if we have any demand creation at all.
Not everyone’s convinced. Nomura Equity Research’s Sidney Ho this morning reiterates a Neutral rating on Micron, writing that the company is “entering a cold winter” as far as DRAM.
We expect more pricing pressure from DRAM in the Feb-12Q. While DRAM pricing held up well for Micron in the Nov-11Q, we note that prices have fallen by more than 20% quarter to date. We expect DRAM gross margin to decline from +4% in Nov-Q to -2% in Feb-Q. We also expect DRAM to remain subdued heading into the seasonally weakest quarter for PC build. Furthermore, Micron commented that hard disk drive shortages have negatively impacted DRAM demand by 10- 15%, and the impact will likely prevail in calendar Q1.
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