Slowing DRAM Supply And A Stabilization In The PC Market To Positively Impact Micron’s Topline In Q4’16

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MU: Micron Technology logo
MU
Micron Technology

Micron (NYSE:MU) is scheduled to release its Q4 2016 earnings on October 4th after the market close. (Fiscal years end with September.) Since the last earnings announcement, the company’s stock price is up by more than 50%. This is because investors expect Micron to see improvement in its revenues and margins going ahead, driven by improvement in the DRAM pricing. In an investor presentation in early September, the company said that robust overall demand for memory products and stabilization in the PC market, coupled with  a decrease in the industry supply of memory products, was driving improved results for the company in Q4. Additionally, the company indicated its Q4 revenues and gross margins were tracing to the higher end of its guided range. This can translate to approximately 14% improvement in the company’s topline on a sequential basis.

Stabilising PC Market Contributing To Improvement In DRAM Prices

We recall that in Q3 Micron’s net sales remained relatively flat sequentially and declined by 24% on a year over year basis. Furthermore, the company’s gross margins declined by 3 percentage points sequentially in Q3, due to a decline DRAM prices. Micron’s revenue growth and margin improvements are dependent upon DRAM sales, which contributed to around 60% of its overall revenues in Q3. One of the major factors driving down DRAM prices in the past is the continued weakness in the PC market. PC shipments witnessed a year-on-year decline of 11.5% and 4.5% in Q1’16 and Q2’16 respectively. Nevertheless, a report by IDC suggests that PC market is better positioned in the second half of 2016, because of an improvement in the inventory levels, stronger business demand and a sequential decline in the prior year comps arising from the expiration of free Windows 10 upgrades. The stabilising PC market has likely contributed to improved revenues and margins for Micron in Q4.

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3D NAND Can Be A Major Driver For Micron In 2017

In Q3, Micron’s trade NAND revenue declined 15% quarter on quarter, primarily due to downtime incurred by the company in connection with the transition from planar NAND-based SSDs to 3D NAND -based SSD (solid state drives). The company is still in the middle of the planar to 3D NAND conversion, and expects to achieve the 3D bit crossover by this fall. Currently, 3D NAND is in low double digit percentage of total NAND, and more than 50% of the NAND bits Micron produces will be from 3D NAND  once the crossover is complete. In addition, the 3D XPoint is likely to be a strong contributor to the company’s future success with revenue in 2017 and beyond. With regard to 3D XPoint, Micron claims to be working with market enablers across a number of market segments to spur demand.

See our complete analysis for Micron here

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