This firm should be able to take part in more appealing end-markets such as enterprise solid-state drives while enjoying superior cost metrics.
reported impressive fiscal third-quarter results, driven by a strong pricing environment that is expected to persist for the remainder of the year. While favorable DRAM average selling prices stemming from tight supply bolstered the firm’s results, we reiterate our positive thesis on Micron’s 3D NAND offerings codeveloped with Intel. Micron is ramping its 2nd generation 3D NAND offerings, with meaningful output expected by the end of fiscal 2017. This should enable the firm to take part in more appealing end-markets such as enterprise solid-state drives while enjoying superior cost metrics. We are increasing our fair value estimate modestly to $28 per share from $26 as we incorporate stronger near-term expectations. However, we caution prospective investors to seek a wider margin of safety, as this no-moat stock has already risen over 130% over the past 12 months.
Abhinav Davuluri is a senior equity analyst for Morningstar.
Third-quarter revenue grew to $5.57 billion, up 20% sequentially, led by a 25% gain in server DRAM sales, a 30%-plus increase in SSD revenue, and record quarterly revenue from the embedded business unit (which features automotive, consumer, and industrial end-markets). DRAM sales rose 20% over the prior quarter to $3.56 billion, with the aforementioned server gains partially offset by declines in PC DRAM. We were pleased to see SSD sales to cloud and enterprise customers exceeding client SSD sales, as the former generally boast higher capacities and ASPs. Gross margins rose to 46.9% from 36.7% last quarter, as Micron enjoyed strong bit growth in NAND, ASP increases in DRAM, and cost per bit reductions in both DRAM and NAND.
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