DRAM Spot Prices Improve as Micron Recovers to $5.74 Fair Value

by Trefis Team
-6.07%
Downside
34.49
Market
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Trefis
MU
Micron Technology
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Micron Technology (NASDAQ:MU) stock ended last week at $5.55 and is inching closer to our estimate of $5.74. Recently, the stock price breached our price estimate on the news of Rambus litigation (Micron Cleared in Antitrust Suit, Shares Overshoot $5.75 Value), but cooled down later to reflect the fundamental value in the stock. Micron’s revenues have taken a hit due to the weakness in the worldwide dynamic random access memory (DRAM) market. Similar is the case for other memory manufacturers like Samsung and Hynix that together control around 65% of the global DRAM market. However, supply control measures adopted by these players recently have subsided the steep fall in DRAM prices.

See our complete analysis of Micron here

DRAM spot prices have increased around 10% recently due to the efforts by Micron and other memory manufacturers to protect their bottom lines. DRAM was trading below its cash cost up till last month.

Additionally, as a result of huge DRAM inventories, Micron and Hynix cut back on their production and cleared out their inventories on the spot market. And since there is a short lead time on the orders supporting price rallies on the spot market, most DRAM makers have begun to raise their quotes instead of accepting low-priced orders.

Hynix has kept its 2Gb DDR3 chips at US$0.70 and is trying hard to push the price to US$0.85, while Micron has lifted its offers for comparable chips to US$0.90, in line with its historical premium over other DRAM manufacturers. DRAM accounts for around 40% of Micron’s overall value, and hence it was imperative that Micron address the issue of falling prices and increase supply soon.

DRAM manufacturers  are expecting the current price rally to push the prices of 2Gb DDR3 chips to US$1; however, resistance can be seen around $0.9 levels. This should fare well for Micron’s stock price, going forward, and should reflect in its earnings that are due on December 21.

We have a $5.74 price estimate for Micron, slightly above the current market price.

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