20 March 2019 Americas/United States States Equity Research Semiconductor Devices
Micron Technology Inc. (MU) Rating OUTPERFORM [V] Price (20-Mar-19, US$) 40.13 Target price (US$) 90.00 52-w 52-wee eek k pri price ce rang range e (US (US$) $) 62.6 62.62 2 - 29.0 29.02 2 Market cap(US$ m) 44,988 Enterprise value (US$ m) 43,654 Target price is for 12 months. [V] = Stock Considered Volatile (see Disclosure Appendix)
Research Analysts John W. Pitzer
Charles Kazarian
Share price performance 70 60 50 40 30 20 A p r- 1 8
Jul - 1 8
M U. U . OQ OQ
Oc t- 1 8
Jan- 1 9
S& P 5 0 0 I N D EX EX
On 20-Mar-2019 the S&P 500 INDEX c losed at 2824.23 Daily Mar21, 2018 - Mar20, 2019, 03/21/18 = US$61.07
Quarterly EPS 2018A 2019E 2020E
Q1 2.45 2.97 0.82
Q2 2.82 1.72 0.97
Q3 Q4 3.15 3.53 0.85 0.81 1.18 1.53
FO F ORECAST REDUCTION
Checking the Boxes to Mark the Bottom Bottom Line: MU reported F2Q Rev/EPS and guided F3Q BELOW our in-print estimates but IN LINE with our preview. MU guided F3Q Rev to $4.6-5.0bn, GM to 37-40% (inclusive of underutilization charges we estimate at 200-400 bps) and EPS of $0.75-0.95, vs. our preview of $4.6-5.1bn, 39-40% and $0.80-0.90. While F2Q Inv dollars increased 13% q/q and 27 days to 134, results increase conviction of a bottoming process and hard bottom likely in F4Q, with the key incremental info from earnings that MU modestly reduced CapEx to $9 bb from $9.25 bb (now down $1.5 bb from original guide) and more importantly is reducing DRAM utilization – historically the last sign-post of a cyclical bottom, albeit usually done below cash cost. We would also highlight: (1) NAND CapEx peaked in C1Q, capacity peaked in C3Q and depth/duration of ASP declines are in-line with prior cycles, (2) SIA DRAM bit shipments have experienced the worse y/y declines in history indicating rapid inv. depletion, and (3) Checks indicate hyperscale inventory will be at normal levels by mid-year. As investors become comfortable with a cyclical bottom, we see a re-rating along secular lines – cost curves flattening as memory becoming more critical to compute architecture and MU competitive position/mix improving. We lower FY19/20 EPS to $6.35/$4.50 from $7.70/$8.25 but note annualized F4Q19/20 EPS is $3.25 and $6.15 – risks include a prolonged memory downturn. We would highlight: F2Q Results/F3Q Guide: F2Q Rev/EPS was mostly IN LINE with Street, ■ and F3Q EPS of $0.85 WELL BELOW Street of $1.31 but IN LINE with CS Preview of $0.85. Weak end-demand is due to excess customer inventory, Cloud digestion, CPU shortages, and macro uncertainty. Outlook for NAND in FY20: While MU expects FY20 NAND bits below ■ industry levels – given the high capital intensity associated with the transition from floating to replacement-gate – we still see healthy cost declines in FY20 driven by increased mix of managed NAND and 64/96L. Valuation: MU trades at 10.0x FY20 EV/FCF (w/SBC) and 9.3x FY20 P/E ■ (w/SBC) – albeit 6.5x and 5.5x on annualized F1Q21 estimates as MU cyclically recovers. Further, MU remains profitable at the bottom of the cycle, and is still executing on buybacks ($2.5bn in F1H with $7.5bn remaining). Financial and valuation metrics Year EPS (Excl. ESO) (US$) Prev. EPS (Excl. ESO., US$) EPS (CS adj., ) P/E (Excl. ESO.) (x) P/E rel. (Excl. ESO., %) Revenue (US$ m) EBITDA (US$ m) Net Debt (US$ m) OCFPS (US$) P/OCF (x) Number of shares (m) BV/share (Next Qtr., US$) Net debt (Next Qtr., US$ m) Dividend yield (%)
1,121.05 30.9 -1,763.6 -
8/18A 8/19E 11.96 6.35 7.70 11.79 6.21 3.4 6.3 19.4 38.2 30,391.0 23,646.2 20,103.0 14,144.7 -1,869 -1,333 14.15 11.39 2.8 3.5 Price/Sales (x) P/BVPS (x) Dividend (current, US$)
8/20E 4.50 8.25 4.30 8.9 60.1 22,342.2 12,854.9 -5,482 10.62 3.8 1.79 1.4 -
Source: Company data, Refinitiv, Credit Suisse estimates
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this r eport as only a single factor in making their investment decision.
20 March 2019
Micron Technology Inc.
(MU)
Price (20 Mar 2019): US$40.13 US$40.13;; Rating: OUTPERFORM [V]; [V]; Target Price: 90.00 90.00;; Analyst: John Pitzer Income Statement Revenue (US$ m) Sa l e s EBITDA Operating profit Recurring profit Cash Flow Cash flow from operations CAPEX Free cashflow to the firm Cash flow from investments Net share issue(/repurchase) Dividends paid Issuance (retirement) of debt Other Cashflow from financing activities Effect of exchange rates Changes in Net Cash/Debt Net debt at end Balance Sheet ($US) Assets Other current assets Total current assets Total assets Liabilities Short-term debt Total current liabilities Long-term debt Total liabilities Shareholder equity Total liabilities and equity Net debt Per share No. of shares (wtd avg) CS adj. EPS Prev. EPS (US$) Dividend (US$) Free cash flow per share Earnings Sales growth (%) EBIT growth (%) Net profit growth (%) EPS growth (%) EBIT margin (%) Valuation EV/Sales (x) EV/EBIT (x) P/E (x) Quarterl EPS 2018A 2019E 2020E
Q1 2.45 2.97 0.82
8 /1 8 A 30,391.0 30,391.0 20,103.0 15,243.0 15,122.0 8 /1 8 A 17,400 (8,879) 8,521 (8,216) 1,655 0 (9,185) (246) (7,776) 7,895 (1,869) 8 /1 8 A
8/19E 23,646.2 23,646.2 14,144.7 8,086.4 8,191.9 8/19E 13,128 (9,036) 4,092 (10,569) (2,568) 0 1,095 (10) (1,483) (536) (1,333) 8/19E
8/20E 22,342.2 22,342.2 12,854.9 5,675.8 5,778.8 8/20E 12,149 (8,000) 4,149 (8,000) 0 0 0 0 0 4,149 (5,482) 8/20E
460 16,039 43,376
1,215 17,132 48,488
1,235 21,352 53,529
1 5,754 3,777 11,083 31,424 43,377 (1,869) 8 /1 8 A 1,230 11.79 0.00 6.93 8 /1 8 A 49.5 144.6 166.9 16.4 50.2 8 /1 8 A 1.42 2.8 3.4
1 6,841 3,604 11,538 36,088 48,489 (1,333) 8/19E 1,152 6.21 7.56 0.00 3.55 8/19E (22.2) (47.0) (50.7) (47.7) 34.2 8/19E 1.85 5.4 6.5 Q3 3.15 0.85 1.18
1 7,578 3,604 12,275 40,392 53,530 (5,482) 8/20E 1,144 4.30 8.08 0.00 3.63 8/20E (5.5) (29.8) (31.2) (30.0) 25.4 8/20E 1.77 7.0 9.3 Q4 3.53 0.81 1.53
Q2 2.82 1.72 0.97
Company Background Micron Technology, Inc. is a manufacturer & marketer of semiconductor devices, principally dynamic random access memory, Nandi Flash memory, as well as other innovative memory technologies, packaging solutions & semiconductor systems
Blue/Grey Sky Scenario
Our Blue Sky Scenario (US$) 100.00 Our Blue Sky scenario of $100 assumes ~11x EPS, sustainable indsutry growth, and reduced pricing volatility. Our Grey Sky Scenario (US$) 3 0 .0 0 Our Grey Sky scneario of $30 assumes trough EPS of ~$3.75 and a 8x P/E multiple.
Share price performance 70 60 50 40 30 20 A p r - 1 8
Ju l - 1 8
M U .O .O Q
O ct - 1 8
Ja n - 1 9
S& P 5 0 0 I N D EX EX
On 20-Mar-2019 the S&P 500 INDEX closed at 2824.23 Daily Mar21, 2018 - Mar20, 2019, 03/21/18 = US$61.07 Source: Company data, Refinitiv, Credit Suisse estimates
Micron Technology Inc. (MU)
2
20 March 2019
Summary of Results and Expectations Figure 1: MU Summary of Expectations MU Revenue % Q/Q chng % Y/Y chng Gross Margin Total Operating Expenses Operating Income Operating Margin Net Income (w/ options) Net Margin EPS (Pro Forma w/ options) EPS (Pro Forma ex options)
Nov-18 Reported
New CS
$ 7, 7,9 13 13 -6 .2 .2 % 1 6. 6.3 % 59 .0 % $ 78 3 $ 3, 3,8 87 87 49 .1 % $ 3, 3,4 61 61 43.7%
$ 5, 5,8 35 35 - 26 26 .3 .3 % - 20 20 .6 .6 % 50 .2 .2% $8 18 $2 ,1 $2 ,1 10 10 36 .2 36 .2% $ 1, 1,9 14 14 32.8%
$6,000 -24.2% -18.4% 51.5% $800 $2,289 38.1% $1,969 32.8%
$2.93 $ 2. 2.97
$1.67 $1.72
$1.71 $1.75
EPS (GAAP) Diluted Shares Outstanding
$2.81 1 ,1 ,1 79 79 .4 .4
Free Cash Flow FCF per share
$2,110 $1.79
Feb-19 Cons
CS
$5,878 -25.7% 50.5% $804
36.9%
$1.67
$1.49 $1.57 1 ,1 ,1 49 49 .0 .0 1,153.0 $7 $ 7 49 $0.65
Guidance
$1,027 $0.89
$5.7-6.3bn 50.0%-53.0% $800 +/- $25m $1.65-$1.85
New CS
$4,810 -17.6% -38.3% 38.5% $785 $1,067 22.2% $907 18.9%
$0.80 $0.85
CS
$5,712 -4.8% -26.7% 48.1% $816 $1,934 33.9% $1,663 29.1%
$1.44 $1.48
$0.77 $1.30 1,140.0 1,154.2 $547 $0.48
$1,470 $1.27
May-19E Cons
Guidance
$5,519 -6.1%
$4.6-5.0bn
32.1%
$1.32
37.0%-40.0% $785 +/- $25m $0.75-$0.95
1,140
Cons
FY2020E CS
New CS
Cons
$23,646 $25,495 $25,408 $22,342 $27,115 $25,095
46.1% $817
FY2019E CS
New CS
-22.2% 47.6% $3,171 $8,086 34.2% $7,152 30.2%
$6.21 $6.35
-16.1% -16.4% 52.1% 51.7% $3,219 $10,064 39.5% 38.6% $8,775 34.4% $7.56 $7.70
$7.40
-5.5% 6.4% 39.6% 52.1% $3,175 $3,280 $5,676 $10,845 25.4% 40.0% $4,920 $9,363 22.0% 34.5% $4.30 $4.50
$8.08 $8.25
$5.77 $6.99 1,152.4 1,160.5
$4.09 $7.53 1,144.0 1,158.2
$4,092 $4,954 $3.55 $4.27
$4,149 $5,305 $3.63 $4.58
-1.2% 47.9%
32.5%
$6.30
Source: Company data, Credit Suisse estimates, Thomson Reuters
F2Q19 (FebQ) Rev BELOW CS/Street, EPS ABOVE CS/Street: MU reported F2Q19 Rev of $5.83bn (-26.3% q/q), BELOW CS Preview at $5.87bn (-25.8% q/q) and Street $5.88bn (-25.7%) and BELOW guidance for $6.0bn (-24.2% q/q). The company reported EPS of $1.71, ABOVE CS Preview of $1.68/Street $1.67, and BELOW the midpoint of the guided range at $1.75. ■
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Micron Technology Inc. (MU)
Well-Known Headwinds Result in Rev slightly BELOW Preview: Similar to C1Q outlooks from peers, MU Rev was adversely impacted by a “challenging industry environment,” with inventory adjustments and software optimizations at cloud customers. Pricing weakness in both DRAM and NAND was worse than expected, but was partially offset by better mix in NAND. Inventory Continues to Build as Customers Correct: Inventory of $4.4bn was +13.3% q/q and days of 138 were up 29 days q/q and 43 days y/y. Inventory days are at historic highs, and the company is reducing output to meet lower expected levels of demand. DRAM Rev BELOW CS: MU's DRAM Rev (64% of total Rev) of $3.73bn decreased 30.6% q/q and 28.4% y/y, BELOW CS estimate at $4.08bn (down 24% q/q and 22% y/y) – driven by worse-than-expected bit shipments (down low double digits, we now model -11% q/q vs. previewed -8% q/q) and ASPs down low 20s q/q (we model -24% vs. previewed -18%). We would highlight that the company’s 1ynm is yielding well, and 1z nm has started sampling. NAND Rev ABOVE CS: Trade NAND Rev (30% of total Rev) of $1.77bn decreased 19% q/q and 2% y/y, above CS preview at $1.47bn (down 33% q/q and 19% y/y) y/y) – driven by better-than-expected bit shipments (up high single digits, we model +10% q/q vs. previewed -9% q/q) and lower ASPs (down mid-20s q/q, roughly IN LINE with previewed -26%). MU’s 96L has had the fastest yield ramp of any NAND product in MU’s history, and 2/3 of NAND Rev now comes from high-value solutions – this helped NAND GMs remain in the high 30s despite steep pr ice declines. GM and OpM BELOW CS Preview and Street: Overall GM of 50.2% (-880 bps q/q) was BELOW CS preview of 51.1% and Street 50.5%, as well as the midpoint of guide (51.5%). 3D XPoint underutilization costs drove 160bps of headwinds that added to well-known seasonal and macro headwinds, which were partially offset by mix in NAND to higher-value NAND solutions. MU no longer discloses segment GMs, but management did say overall NAND GM remained above 30% due to high-value solutions in the mix. OpM of 36.2% (-12.9% q/q) was BELOW CS of 37.4% and Street 36.9%. EPS Operational Downside: EPS in F2Q of $1.71 was ABOVE CS Preview of $1.68/Street $1.67, and BELOW the midpoint of guide ($1.75). However, $0.09 cents of benefit from taxes/interest/other implies $0.06 of operational downside relative to CS preview.
3
20 March 2019
F3Q19 (MayQ) Rev/EPS IN LINE with CS Preview: MU guided F2Q Rev to a range of $4.6-$5.0bn or $4.8bn (-17.7% q/q) at the mid-point, roughly IN LINE with CS preview of $4.85bn and BELOW Street of $5.52 (-6.1% q/q). ■
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Meaningful Production Reductions in DRAM and NAND Outlook: Continued oversupply in DRAM and NAND have dampened management’s outlook for DRAM and NAND growth in CY19. In DRAM, customers who have carried higher-than-normal inventory levels amidst a lengthy period of rising DRAM prices working through their inventory after DRAM supply caught up with early demand. With respect to NAND, the transition from planar to 3D NAND in the industry and successful ramp of 64-layer across the NAND manufacturers is thought to have resulted in oversupply in the market over the last several quarters. Based on this supply-demand environment MU is planning to cut CapEx, idle ~5% of DRAM wafer starts, and reduce total NAND wafer starts by 5% on older nodes. CY2019 DRAM bit demand is expected to be in the low to mid-teens, with actual demand a few percent higher, industry bit supply growth is trading to mid-to-high teens. CY2019 bit demand was guided to the mid-30s, with industry supply in the high 30s. The company targets its bit shipments to grow close to the industry bit demand rate. Tech Transitions Remain On Track: Management stated the company’s 1ynm is yielding well, with increased conversion in 2HFY19. The company has started sampling 1znm products, and site preparation is taking place for cleanroom expansion at Taichung to enable future nodes, with production output slated for CY2021. In NAND, 96L is the fastest yield ramp of any NAND product in MU’s history. The company is making progress in replacement gate development, but the initial node with have limited deployment to select product lines, with Gen 2 seeing widespread deployment. The company’s CY2020 NAND bit production rate will lag the industry, and demand will be met through 64/96L inventory. FY19 CapEx Lowered Again: After increasing expected FY19 CapEx by $2bn y/y in the AugQ, MU lowered CapEx plans by ~$1.25bn to $9.0bn-$9.5bn in the NovQ. MU lowered its CapEx plants once again to the $9.0b level to support reduced production plans. The company’s CapEx in FY19 will be used to support technology transitions and back-end capabilities, rather than grow wafer starts.
DRAM Demand Analysis Demand Always Misleading During Inventory Correction: While investors continue to question LT DRAM demand based upon SIA sell-in data, we would remind investors sell-in always looks weak during periods of inventory digestion; prior troughs were marked by sub-trend bit growth like CY12/13, CY15/16 and CY19E. Importantly, SIA data for Dec/Jan shows DRAM bit shipments down 15/11% y/y – the worst declines all-time (back to 1993) indicating the market is significantly under-shipping consumption. Specifically, looking at DRAM bits to trend would illustrate that Jan19 was back to below trend and more in-line with bit shipment levels seen in 2017.
Micron Technology Inc. (MU)
4
20 March 2019
Figure 2: Jan DRAM Bits Below Trend
Figure 3: Y/Y Bits Worse on Record
12
140%
) % ( Y / Y 100% d n a m e D 60% t i B M A R 20% D
10 ) m m8 ( b G 6 M A R D 4
2 0
-20% 0 1 n a J
0 1 l u J
1 1 n a J
1 1 l u J
2 1 n a J
2 1 l u J
3 1 n a J
3 1 l u J
4 1 n a J
4 1 l u J
DRAM Bits
5 1 n a J
5 1 l u J
6 1 n a J
6 1 l u J
7 1 n a J
7 1 l u J
8 1 n a J
8 1 l u J
9 1 n a J
7 0 n a J
Linear (DRAM Bits)
Source: Company data, Credit Suisse estimates
7 0 p e S
8 9 0 - 0 y n a a J M
9 0 p e S
0 1 1 - 1 y n a a J M
1 1 p e S
2 3 1 - 1 y n a a J M
3 1 p e S
4 5 1 - 1 y n a a J M
5 1 p e S
6 7 1 - 1 y n a a J M
7 1 p e S
8 9 1 - 1 y n a a J M
DRAM Bits Y/Y (%) Source: Company data, Credit Suisse estimates
Gross Profit Degradation Gross Profit Degradation: The chart below looks at periods where MU’s Rev has declined q/q – and plots Gross profit degradation as a function of Rev declines. Specifically, it highlights the changes in gross profit dollars for every $1 decline in Total Rev. We would note the median Gross profit degradation in the last downturn was $2.2 for every $1.0 of Rev decline versus NovQ18 thru MayQ19 degradation of $1.7 – i.e., MU’s gross profit has degraded at ~3/4 the rate of the last downturn.
Figure 4: Gross Profit Degradation $10.0 v e R f o 1 $ r o f t i f o r P s s o r G f o 1 $ n i e g n a h C
$9.0 $8.0 $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0
0 1 1 6 6 6 7 8 8 9 0 0 1 1 1 2 2 3 4 5 6 7 7 8 8 0 1 2 2 2 4 5 5 5 5 6 6 8 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 4 3 4 1 2 3 3 1 2 2 1 4 1 2 4 3 4 2 1 2 1 1 2 1 4 4 4 1 3 4 2 1 2 3 4 1 2 4 1 2 C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C C
GP Degradation when Rev declines q/q
Source: Company data, Credit Suisse estimates
Memory Trends Server DRAM Hangover Analysis: Server DRAM at a 29% CAGR from 2011-2016, and then increased 46% and 48% in 2017 and 2018. While there were architectural drivers (Xeon-scalable increased memory bandwidth by 50%), the rise in DRAM pricing starting in 2017 contributed to Hyperscale customers stockpiling inventory, which is currently being drawn down. DRAM production grew 21% in CY19; assuming a normalized 35% increase in 2017 and 2018 suggests normalized demand grew 17% in 2018, and Hyperscale builds drove a ~3% inventory build, or approximately 2 weeks of DRAM inventory and 8 weeks of Micron Technology Inc. (MU)
5
20 March 2019
Server inventory. Further assuming that normalized DRAM bit demand growth is 18%-20% per year implies that this year’s production increases of 15% should be sufficient to draw down inventory and return to a normalized environment.
Figure 5: Hyperscale Hangover Analysis 9,000
120
8,000 100 7,000 )
s 0 06,000 0 ( s t i n5,000 U U P4,000 M r e v 3,000 r e S
80 60 40
2,000
g v A Q 4 T U P M / B G M A R D
20 1,000 0
1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 - 1 - 1 - - - r - - - - - - - - - - - - - - - - - - - - - - - - - - r p c n p c r n p c r n p c r n p c r n p c r n p c r n p c a n u e e a u e e a u e e a u e e a u e e a u e e a u e e a u e e J J M S D M S D M J S D M J S D M J S D M J S D M J S D M J S D
Server MPU Units
DRAM/MPU GB
-
Linear (DRAM/MPU GB)
Source: Company data, Credit Suisse estimates ■
CapEx Peaks Foreshadow ASP Stabilization: While NT checks paint a dreary start to CY19, we continue to highlight the follow relationship: 2 Qs after CapEx peaks, y/y bit growth peaks; 1-1.5 Qs after y/y bit growth peaks, pricing begins to stabilize – i.e., declines in line with costs. NAND/DRAM CapEx peaked in C1Q18/C2Q18. C1Q18/C2Q18. NAND y/y bit growth peaked in C3Q18, DRAM will in C4Q18.DRAM and NAND price stability should begin to emerge in late late C2Q, vs. our FY19 EPS which embed embed price declines moderating in F4Q19 (Aug).
Figure 6: DRAM Capex vs. Bit Growth $5,000.0
Figure 7: DRAM Bit Growth vs. ASPs 70%
$4,500.0
100%
60%
80%
50%
60%
$4,000.0 $3,500.0 x e p a C M A R D
40%
$3,000.0 $2,500.0
30%
$2,000.0
20%
$1,500.0
h t w o r G t i B M A R D
40%
20%
0%
-20%
10% $1,000.0
-40%
0%
$500.0
-60%
$0.0
-10% -80%
D RA RA M C ap ap ex ex 4 Q M A
Source: Company data, Credit Suisse estimates
Micron Technology Inc. (MU)
D RA RA M B it s 4 Q M A
DRAM Bits 4Q MA
DRAM ASPs 4Q MA
DRAM Cost Cu rve
Source: Company data, Credit Suisse estimates
6
20 March 2019
Figure 8: NAND Capex vs. Bit Growth
Figure 9: NAND Bit Growth vs. ASPs
$9,000.0
180%
$8,000.0
160%
$7,000.0
140%
$6,000.0
120%
x e p $5,000.0 a C D N $4,000.0 A N
100% 80%
$3,000.0
60%
$2,000.0
40%
$1,000.0
20%
100%
80%
60%
h t w o r G t i B D N A N
40%
20%
0%
-20%
-40%
-60%
$0.0
0% -80%
N AN AN D C ap ap ex ex 4 4Q Q MA
N AN AN D B it s 4 Q M A
NAND Bits 4Q MA
NAND ASPs 4Q MA
NAND Cost Curve
Memory CapEx Cuts Came Before Margin Downside for First Time: We would highlight that not only is CapEx down significantly, with memory WFE down ~30% in 2019, but CapEx cuts historically came several quarters after margins started coming down and C1Q18 CapEx cuts occurred against flat to modestly increasing operating margins – while margins are coming down for the memory makers in 2019, MU will remain profitable.
Figure 10: Memory CapEx vs. OpM Over Time $14
60%
$12 40% $10 ) b b $ ( x e p a C y r o m e M
20%
$8
$6
0%
) % ( n i g r a M g n i t a r e p O
$4 -20% $2
$0
-40% 3Q00
1Q 0 2
3Q03
1Q05
3Q06
1Q08
3Q09
Memory Capex ($bb)
1Q11
3Q12
1Q14
3Q15
1Q17
3Q18
Memory OpM (%)
Source: Company data, Credit Suisse estimates
Micron Technology Inc. (MU)
7
20 March 2019
Companies Mentioned (Price as of 20-Mar-2019) Micron Technology Inc. (MU.OQ, $40.13, OUTPERFORM[V], TP $90.0)
Disclosure Appendix Analyst Certification I, John W. Pitzer, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. 3-Year Price and Rating History for Micron Technology Inc. (MU.OQ) MU.OQ Date 31-Mar-16 15-Dec-16 21-Dec-16 21-Mar-17 23-Mar-17 27-Sep-17 19-Dec-17 19-Mar-18 21-May-18 20-Jun-18
Closing Price (US$) 10.47 20.29 20.58 25.52 26.47 37.09 43.98 60.14 55.48 58.95
Target Price (US$) 20.00 25.00 30.00 35.00 40.00 50.00 60.00 70.00 80.00 90.00
Target Ta rget Price
Rating O
Closing Clos ing Price MU MU.OQ .OQ
10 0 80 60 40 20 0 0 1 - Jan - 2 0 1 7
0 1 - Jan - 2 0 1 8
0 11- Jan - 2 0 19 19
OUTPERFORM
* Asterisk signifies initiation or assumption of coverage.
As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and Asia stocks (excluding Japan and Australia), ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the conte xt of asso ciate d risk s. Prior to 18 May 2015, ETR range s for Outpe rform and Unde rper form ratin gs did not over lap with Neutr al thres holds between 15% and 7.5%, which was in operation from 7 July 2011.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Micron Technology Inc. (MU)
8
20 March 2019
Credit Suisse's distribution of stock ratings (and banking clients) is: Global Ratings Distribution
Rating
Versus universe (%)
Of which banking clients (%)
47 % 39 % 13 % 2%
(33% banking clients) (28% banking clients) (21% banking clients)
Outperform/Buy* Neutral/Hold* Underperform/Sell* Restricted
*For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
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MU is near trough levels and see fundamentals improving mid-2019 (1) we expect pricing to start stabilising, (2) structurally, Memory is a different industry now—higher concentration than ever, more diversified demand, and slowing supply—and we argue margins are more resilient now than in the past, and (3) we continue to argue that its strategic value continues to be under-appreciated, particularly given memory's importance to the new data economy. Risk:
Risks to MU's $90 target price and our OUTPERFORM rating are: (1) pricing pressure in the DRAM and NAND NAND markets; (2) execution issues in NAND ; and (3) execution issues in converting to 1z DRAM. Major risks for our OUTPERFORM rating are (1) DRAM market could continue to weaken, (2) the company could continue to have execution issues in DRAM, and (3) new entrants from China could enter the market.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names
Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): MU.OQ Credit Suisse provided investment banking services to the subject company (MU.OQ) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (MU.OQ) within the past 12 months. Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): MU.OQ Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (MU.OQ) within the next 3 months. Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s): MU.OQ A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (MU.OQ) within the past 12 months. For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.creditsuisse.com/disclosures/view/report?i=417080&v=2fpndeechkuac6j87m9776yq5.. suisse.com/disclosures/view/report?i=417080&v=2fpndeechkuac6j87m9776yq5 Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. Micron Technology Inc. (MU)
9
20 March 2019
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Micron Technology Inc. (MU)
10
20 March 2019
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Micron Technology Inc. (MU)
11
North America Equity Research 21 March 2019
Overweight
Micron Technology
MU, MU US
Price (20 Mar 19): $40.13
Strong Focus on Profitability Amid Weak 1H; We Expect Fundamentals to Trough in Aug-Q and Improve Into 2020; Remain OW
▲ Price Target (Dec-19): $64.00 Prior (Dec-19): $55.00
Micron reported F2Q19 (Feb-Q) revenue/EPS below the midpoint of guidance and JPMe though ahead of consensus consensus and well ahead of market expectations, expectations, in our view. F3Q19 (May-Q) (May-Q) guidance was well-below well-below consensus / JPMe on a weaker weaker pricing environment associated with continued excess inventory across end-markets that could take another another 1-2 quarters to to bleed off off as well as on underutilization underutilization charges as the team takes further disciplinary steps to temper supply growth. On a positive note, Micron (and its competitors) remains remains disciplined in terms of capex and bit supply with Micron not only cutting capex for the 2 nd consecutive quarter, but also reducing / idling some DRAM and NAND production production capacity. capacity. We believe Micron’s steps, as well as its competitors, competitors, are noteworthy noteworthy in that it supports our view view of an industry focused on on profitability profitability and FCF generation generation rather than on market market share. share. For CY19, CY19, Micron reduced its industry industry DRAM bit demand growth expectation expectation to low-to-midlow-to-midteens (from (from ~16%) and, with our assumption assumption of of reacceleration reacceleration of investments by data center customers, content uplift in phones and CPU shortages to abate, we expect supply/demand fundamentals to normalize in the back half of the year. Nevertheless, based on our assumption assumption that it will take a few more quarters for excess channel inventory to be worked down, with continued sizeable ASPs declines over the next few quarters, we now expect expect the Aug-Q to represent represent the trough in terms of earnings power – at $4 billion of annualized annualized operating operating income income versus $80M in the prior memo memory ry down down cyc cycle le - befor beforee imp impro rovin ving g lat later er in CY19 CY19 and into into 202 2020 0 as underutilization charges begin to go away. We believe the team is executing well on its technology roadmap and remains on track to ramp 1Ynm DRAM and 96 layer 3D NAND, likely achieving bit crossover crossover by b y the end of CY19. Although we lower our 2019 estimates estimates to account account for for continued continued market weakness, weakness, we model model trough annualized earnings power exceeding $2.60, which is significantly higher than breakeven/negative earnings in prior cycles. With our continued view of improving fundamentals later this year and into 2020 and based on what we view to be a favorable risk/reward profile, we remain Overweight MU.
Micron Technology, Inc. (MU;MU US) FY17A Year-end Aug ($)
Revenue ($ mn) Adj. EBIT ($ mn) EBIT margin EBITDA margin Adj. EPS ($) BBG EPS ($) R eported EPS ($) Dividend yield Adj. P/E P/ BV
20,322 5,868 28.9% 48.5% 4.86 4.74 4.38 8.3 2.5
FY18A
30,391 14,994 49.3% 65.3% 11.91 11.74 11.46 3.4 1.5
FY19E
FY19E
(Prev)
(Curr)
25,311 9,022 35.6% 58.5% 7.15 6.78 5.6 1.2
23,424 7,513 32.1% 55.7% 6.19 7.14 5.31 6.5 1.3
FY20E
FY21E
20,952 4,817 23.0% 53.1% 3.90 5.60 3.64 10.3 1.2
5.18 -
Semiconductors,Semiconductor Cap Equipment & Tech Hardware Harlan Sur
AC
(1-415) 315-6700
[email protected] Bloomberg JPMA SUR
Bill Peterson (1-415) 315-6766 [email protected]
Andrew Andrew Nguyen Nguyen (1-415) 315-5611 [email protected] J.P. Morgan Securities LLC Price Performance 65 55 $ 45 35 25 Mar-18
Jun-18
Sep-18
Dec-18
Mar-19
MU share price ($ S&P500 (rebased)
Abs Re l
YTD 26.5% 13.8%
1m -4.9% -6.3%
Company Data Shares O/S (mn) 52-week range ($) Market cap ($ mn) Exchange rate Free float(%) 3M - Av Avg daily vol (mn) 3M - Avg daily daily val ($ mn) Volatility (90 Day) Index BBG BUY|HOLD|SELL
3m 28.3% 13.8%
12m -34.4% -38.3%
1,149 64.66-28.39 46,109.37 1.00 99.8% 34.89 1,290.2 52 S&P 500 18|13|1
Source: Company data, Bloomberg, J.P. Morgan estimates.
See page 9 for analyst certification and important disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor factor in makin their investm investment ent decision. decision.
Harlan Sur (1-415) 315-6700 [email protected]
North America Equity Research 21 March 2019
Feb-Q (F2Q19) (F2Q19) below the midpoint midpoint of guidance, but ahead ahead of consensus consensus and market expectations. F2Q19 revenue of $5.84B (down 26% Q/Q, down 21% Y/Y) was below below the midpoint midpoint of of guidance guidance and vs. consens consensus/JPM us/JPMee of $5.83B/$6.00B $5.83B/$6.00B on weaker than expected expected pricing environment environment in DRAM and NAND. GM of 50.2% was near the low-end low-end guidance, guidance, though better than feared feared on solid manufacturing, manufacturing, cost execution. OPM came in at 36.2%, resulting in EPS of $1.71, vs. consensus/JPMe of $1.65/$1.75. DRAM revenues decreased 30% Q/Q and NAND revenues decreased 18% Q/Q. Continued weak pricing environment, excess channel inventory impacts May-Q (F3Q19) guide. F3Q19 revenue guidance of $4.6B-$5.0B was well-below consensus of $5.34B, and down ~18% Q/Q at the midpoint midpoint on continued continued weak demand demand / pricing trends here in the first half of CY19. Non-GAAP Non-GAAP GM guidance guidance of 37%-40% or 38.5% at the midpoint midpoint was below consensus of 45.1% 45.1% on reduced reduced bit growth, unfavorable unfavorable pricing, and underutilization underutilization charges (likely in the 200-250 bps range), in our view. Non-GAAP Non-GAAP EPS guidance guidance of $0.85 (+/- 10c) was below consensus consensus of $1.20 on lower revenues and and lower gross margins. Micron taking taking further actions actions to reduction bit supply growth and inventory inventory and we expect industry supply / demand fundamentals to improve as we move through 2019. Although we expect the next two quarters for Micron to be challenging with significant significant ASP declines, declines, particularly particularly in DRAM, DRAM, Micron is taking decisiv decisivee action to reduce bit supply growth and reduce its own inventory from excessive levels. The team cut capex capex for the second consecutiv consecutivee quarter and is also reducing reducing DRAM and and NAND production production capacity by ~5%. From an overall industry perspective, perspective, we believe supply/demand supply/demand fundamentals fundamentals will improve improve in the back-half of the year. year. On the supply side, Micron and its competitors have reduced capex meaningfully since late last year and we estimate spending spending on memory (DRAM and and NAND) wafer wafer fab equipment equipment to decline decline by ~30%+ ~30%+ in 2019. On the demand demand side, side, we continue continue to expect cloud data data center capex to increase by double-digits % Y/Y in 2019, implying a strong 2H19 spending profile, though we acknowledge Micron does not yet have visibility to second half ramps. However, However, we do expect the current current PC CPU shortage shortage to abate by C2Q19 C2Q19 and smartphone unit demand to stabilize (with memory demand bolstered by content increases). Micron’s technology transitions on track and product portfolio improving. 1Ynm DRAM and 96-layer NAND have begun to ramp and we expect solid cost per bit performance performance through the year with bit crossover crossover likely exiting CY19. Micron’s 96layer 3D NAND NAND achieved achieved the fastest fastest yield ramp of any NAND product product in the company's history. On the product side, Micron Micron continues benefiting from moving NAND bits to “high-value “high-value solutions” (two-thirds (two-thirds of NAND bits) such as SSDs (includi (including ng new 2200-ser 2200-series ies NVMe NVMe and 1300-ser 1300-series ies client client SSDs) SSDs) and managed managed NAND NAND and we expect continued continued progress progress on mix later this year and into 2020. Expect solid pace of share repurchases through through FY19 and beyond beyond with Micron's repurchased $732M $732M in shares in in focus on profitability and FCF generation. Micron repurchased F2Q19 or a quarterly payout ratio of ~70% of FCF (net of partner contributions to capex). Looking ahead, we expect the team to be opportunistic with its share repurchases as we move through FY19 even as FCF generation moderates.
Harlan Sur (1-415) 315-6700 [email protected]
North America Equity Research 21 March 2019
Despite challenging challenging near-term market conditions, Micron continues executing executing well and we remain OW MU. Despite near-term headwinds, we continue to expect investors to positively discount improving fundamentals (and industry wide focus on profitability/fre profitability/freee cash flow generation) generation) later this year year and into next year. Micron continues to execute well on its technology transitions and product portfolio. We reiterate our OW-rating on MU shares can continue to see a favorable risk/reward profile from here. here.
3
Harlan Sur (1-415) 315-6700 [email protected]
North America Equity Research 21 March 2019
Micron Technology Technology F2Q19 Results Results and F3Q19 F3Q19 Guidance During F2Q19, DRAM accounted accounted for 64% of revenue revenue (DRAM revenues down 30% Q/Q), while while NAND accounted for 30% of revenue revenue (NAND revenues revenues down 18% Q/Q), vs. 68% DRAM, DRAM, 28% NAND in F1Q19. DRAM ASPs decreased low-20% low-20% range Q/Q while shipments were down lowlowdouble-digit % Q/Q. NAND ASPs decreased decreased mid-20% range Q/Q while while shipments increased high-singledigit% Q/Q. Table 1: F2Q19 Earnings Summary and F3Q19 Outlook $ in millions, except per share data MU Revenue ($M) Q/Q Change Gross Margin (PF) Op Margin (PF) Net Income Income (Pro- orma) Pro- orma orma EPS
F2Q19 Actual $5,835 -26.3% 50.2% 35.6% $1,970 $1.71
JPM Estimate $6,000 -24.2 51.5% 38.6% $2,026 $1.75
Diff ($165) -2.1% -1.3% -2.9% ($56) ($0.04)
F2Q19 Consensus $5,834
F3Q19 Guidance $ 4, 4,600-$5,000
F3Q19 Consensus $5,335
50.8%
37.0%-40.0%
45.1%
$1.65
$0.75-$0.95
$1.20
Source: Company reports, Bloomberg and J.P. Morgan Morgan estimates. From FY17 Non-GAAP excludes SBC and amortization).
Cash Flow / Balance Sheet and Capital Expenditures The company exited F2Q19 with ~$9.2B in cash/investments and generated $3.4B in cash flow from operations (vs. $4.8B in F1Q19). Total capital investment in F2Q19 for the combined entity net of partner contributions was ~$2.4B (vs. $2.5B in the prior quarter) and Micron Micron generated free cash flow of ~$1.0B during the quarter. quarter. Micron repurchased ~$700M in shares (~21 million) for a payout ratio of ~70% in the quarter. Micron lowered its FY19 capex outlook outlook (net of partner contributions) to $9.0B (vs. prior guidance guidance of $9.0B-$9.5B) with spending on cleanroom cleanroom and manufacturing facilities roughly $2B higher in FY19 compared to FY18. Lowering 2019 estimates on lower bit shipments, weaker ASPs, introducing 2020 estimates
We lower our forwarded estimates that accounts for lower bit shipments and lower ASPs. In addition, our estimates reflect our new estimate estimate for opex and share count. Our FY19 revenue / EPS estimates estimates move to $23.4B/$6.19 from our prior estimates estimates of $25.3B/$7.15. Our CY19 revenue revenue / EPS estimates move to $20.8B/$4.09 from our prior estimates of $23.6B/$5.45. $23.6B/$5.45. We introduce our FY20/CY20 FY20/CY20 revenue / EPS EPS estimates of $21.0B/$3.90 and $21.9B/$4.59, respectively.
North America Equity Research 21 March 2019
Harlan Sur (1-415) 315-6700 [email protected]
Appendix I – Valuation Table Table 2: Memory Peer Companies Valuation Table $ in millions
Company Name
Bloomberg Ticker
Curre ncy
Ana lyst
Price
Micron Western Digital Seagate Toshiba Samsung SK hynix Nanya
MU W DC STX 6502 JT 005930 KS 000660 KS 2408 TT
USD USD USD JPY KRW KRW NTD
Ha rlan Sur Ha rlan Sur N/ A Hisa shi Moriyama JJ Pa rk JJ Pa rk JJ Pa rk
$40.13 $47.17 $46.21 ¥3,605.0 46 10 0 74 20 0 $62.40
YTD Change ange %Marke %Markett Cap Cap Sale Sales s C19 C19E ($ mm) 26.5% $4 4 ,9 88 $ 20,752 $ 16,125 27.6% $1 3 ,7 19 19.7% $1 2 ,9 04 $ 9,765 16.3% $19,087 ¥ 3,558,109 226,840,131 19.1% $244,6 59 22.6% $4 8 ,0 22 29,567,484 13.5% $6 ,192 64,509.1
EPS EPS C2 C2019 $ $ $ -¥
4.09 4.50 3.98 21.1 4147 8577 5.40
$
Avg
P/2 P/2019E
Current P/B(x)
9.8 10.5 11.6 N/M 11.1 8.7 11.6
1.2x 1.3x 6.8x NM 1.1x 1.1x 1.2x
10.5x
2.1x
Source: Company reports, Bloomberg and J.P. Morgan estimates. Note: JP Morgan estimates used for MU while Bloomberg estimates estimates are used for all other companies. Pricing as of the close of market on 3/20/19. MU’s earnings exclude SBC and amortization.
Appendix II: Financial Financial Tables Table 3: MU Income Statement $ in millions, except per share data Nov '17
Total Revenue % Change Y/Y % Change Q/Q
Cost of Sales - (GAAP) % Change Y/Y % Change Q/Q Cost of Sales - (Pro forma - excl options
Gross Profits
F eb '18
May '18
Aug '18
2 Q18A 7,351
3Q18A 7,797
4Q18A 8,440
7 1.4 % 1 0.8 %
58.2% 8.1%
40.1% 6.1%
37.5% 8.2%
3 ,056
3,081
3,074
3,289
3 .3 % 1 .0 %
4.7% 0.8%
4.0% -0.2%
8.7% 7.0%
3,036
3,055
3,047
34.0%
4,679 59. 1%
2 ,9 2 8 50 .2 %
1,846 38. 5%
1, 685 34.6%
813
209
209
215
21 5
2,141
611
601
610
61 0
36
97
7
0 0 856
0 0 907
0 0 832
211
215
R &D
44 8
523
603
567
(16)
(44)
Other/Extraordinary Items (equity method i Non controlling interest Anti-dilutive Anti-dilutive effec tof capped capped call
EPS (Pro-forma) % Change Y/Y % Change Q/Q Wt. Average common share - diluted (with
17,992 59.1%
0 0 774
3 ,097
3,567
3,953
4,377
48.5%
50.7%
51.9%
3 ,16 8
3,645
4, 028
4,452
(305) 0 (305)
(114) 0 (114)
(44) (193) (237)
( 16 ) (15) ( 31 )
2 ,79 2 4 1.0 %
3,453 47.0%
3, 716 47.7%
4,346 51.5%
(91) 3 .4 %
(99) 2.8%
(97) 2.7%
(13 1) 3.0%
1 (2)
( 2) 0
2
(5)
(8)
4 5.5 %
0 0
58.9%
(57) 0 0 2,897
14,994 49.3% 15, 293
(479) (208) (687)
3,759
1 ,957
47. 5%
33 .5 %
3,884
2 ,0 7 8
-22.9%
12,484 -0.1%
12, 387
10 10,940
7
147
7
0
0
0
7
0 0 83 2
0 0 3,427
0 0 842
0 0 835
0 0 840
0 0 8 40
0 0 3,357
82 4 16.9%
7,513 32.1%
91 3
7,946
51 (391) (340)
1 (6)
0 0
0 0
1 (9)
3
4
4
5
8
8
8
29
1,240
1, 23 238
1,220
1,235
8 ,1 7 4
6 20
0 (3)
1 ,24 1
2 ,389
620
(1) (3)
$11.91 145.3%
2 ,031
12,681
615
0 (1)
1,857
3, 184
2.3%
615
(140) 15.5%
75.0% 12.3%
3,074
1 2 ,77 7
-0.2% 3 .5 %
2,432
(123) 11. 1%
$3.53
1,897
3 ,213
3 .6 % -0.5%
2 20
(178) 8 .4 %
94. 1% 11. 7%
3 ,0 8 9
3 ,103
220
(400) 10. 2%
$3.15
3,314
5.0% -6.7%
220
2.9%
$2.82
3,118
1.4% 3.8%
220
81 4 16.7%
213. 3% 1 6.8 %
3,343
-10.6%
848
682 14. 2%
$2.41
14. 9% 9 .1 %
2 ,4 18 43. 2%
1 ,9 0 4 32 .6 %
664.8% 19. 4%
7 .0 % 3 .2 %
2 ,0 6 0 40 .1 %
3,773 47. 7%
(418)
-14.7% -5.1%
1,886 37.9%
11,138 47.1%
(10) 0 (10)
-33.8% 7.5%
F20 E 2 0 ,95 2
1,926 36.8%
25 (316) (291)
47.1%
4Q20E 5 ,601
42. 6%
31 ( 84 ) (53)
14,307
3Q20E 5 ,135
39 .6 %
5 9 14
Aug '20
2 Q20E 4,975
37.3%
973
46.7%
May '20
1Q20E 5,241
36.2%
20. 3% 1,071
F19E 23,424
-2.1% 7.5%
1,656
196
Non-GAAP Income T axes Tax Rate
-2.6% 0.8%
37. 6%
19 1
Pretax Income (GAAP) % Total Revenue
3,220
-3.6% -9.9%
1,805
Operating Expenses SG&A
Interest Income/(E xpense) Other Income/(Expense), net Interest/Other
2,995
7.9% 0.3%
49 .1 %
5,179 61.4%
P ro-Forma O perating Income (excl. SB C)
2 ,971
3,298
2 ,864
4, 750 60.9%
Op erating Margin
-42.2% 1.6%
58. 3%
4,296 58.4%
Operating Income (GAAP)
-38.4% -17.7%
4,615
3 ,76 7 5 5.4 %
0 0 770
-20.6% -26.3%
17 17,891
5,151 61.0%
0 0 703
16. 3% -6.2%
3,191
4,723
0 0 65 0
4Q19E 4,876
2, 954
60.6%
11
5.2%
F eb '20
Nov '19
3Q19E 4,800
2,907
4,270
Good wi ll Im pai rm ent Res tructuring Charges GA AP total operating expenses
12,500
Aug '19
2Q19A 5 ,835
3 ,23 4
58.1%
Other Operating Expense
49.5%
May '19
1Q19A 7,913
12,417
3 ,747
G ross P rof its (Non-GAAP, excl. SBC) Gross Margin (non-GAAP)
F1 F18 A 30,391
3,261
5 5.1 %
Gross Margin (GAAP)
Feb '19
Nov '18
1Q18A 6 ,803
7,173 30.6%
(841) 10.4%
$2.97
$ 1 .7 1
$0.85
$0.66
23.3% -15.8%
-39.2% -42.4%
-73. 1% -50. 7%
-81.4% -22.4%
$6.19 -48.0%
1,179
1 ,1 4 9
1,140
1, 137
1,151
1,055 20.1% 1,150
1,022 20.5% 1,117
1 ,191
39.0%
8,290 39.5% 880
2,470
1 ,549
23 .2 % 1 ,2 8 6
4 ,8 1 7
27. 6%
23.0%
1 ,6 44
5,1 97
(40) 0 (40)
(10) 0 (10)
(10) 0 (10)
(1 0) 0 (1 0)
(10) 0 (10)
1,045 19.9%
1,012 20.3%
1 ,1 8 1 23 .0 %
1 ,5 39 27. 5%
(132) 11.6%
(128) 11.6%
(149) 11 .7 %
(1 91) 11. 7%
0 0
0 0
0 0
0 0
0 0
8
5
5
5
23
4,777 22.8%
(600) 11.6%
$0.87
$0.82
$0.96
$1.24
-70. 6% 33.3%
-51.9% -5.8%
13.5% 16.4%
8 8.5% 2 8.9%
$3.9 0 -37.1%
1,134
1,158
1 ,1 5 0
1 ,1 47
1,147
Source: Company reports and J.P. Morgan estimates, Pro-forma estimates F1Q17 forward forward exclude stock compensation and amortization of intangibles
North America Equity Research 21 March 2019
Harlan Sur (1-415) 315-6700 [email protected]
Table 4: MU Balance Sheet
$ in millions FY End - August ASSETS Cash & sh or t - t erm in ves t me nt s Accounts receivable, net I nvent ories O th er Total Current Assets
6, 174 3,876 3, 160 1 48 13 ,3 58
8, 0 4 2 4,437 3, 18 4 17 3 15, 83 6
G ood will, I nt ang ible Ass et s, net Proper ty, Plant & Equipm en ent , net Def e rr ed inco me t a xe s Equity m et hod invest m ents Re st r ic t ed Cash O t her nonc ur re nt a sse ts Total Assets
1, 596 20 ,7 23 7 31 0 3 14 4 69 37 ,1 91
LIABILITIES Accounts payable & accrued expenses Defer red I ncom e Equ ipm ent pu rc hase co nt ra ct s Curr ent port ion of long term deb t O the r cur rent liabilit ies Total Current Liabilities L ong t erm deb t Deferred income taxes O t her non cur rent liabilities Total Liabilities Minority Interest Total Stockholders' Equity Total Liabilities & Stockholders' Equity
1Q18A
2 Q 18 A
3Q18A
4Q 18A
1Q 1 9A
7, 071 4,912 3, 369 1 47 15 , 499
6, 80 2 5,478 3, 59 5 16 4 16, 03 9
5, 563 5,418 3, 876 1 82 15 , 039
1, 57 6 21, 86 4 1, 02 6 0 31 4 64 7 41 , 2 6 3
1, 576 22 , 705 1, 026 0 1 19 9 20 41 , 845
1, 5 5 9 23, 67 2 1, 0 2 2 0 47 3 61 1 43, 37 6
3,766 4 16 0 1, 401 0 5, 583
4,194 42 7 0 1 , 51 4 0 6, 13 5
3,998 4 31 0 1, 454 0 5, 883
7, 644
7, 80 2
5 71 13 ,7 98 8 67 22 ,5 26 37 ,1 91
76 0 14 , 69 7 86 9 25, 69 7 41, 26 3
2Q 19A
3Q 19E
4Q19E
7 ,53 3 4,416 4 ,39 0 21 1 1 6 ,55 0
7, 028 3,682 4, 595 2 11 15 , 517
7, 1 85 3,741 4, 2 35 21 1 15, 37 2
1, 584 24 , 807 8 42 0 1, 565 7 58 44 , 595
1 ,58 4 2 6 ,20 4 84 2 0 1 ,69 0 61 7 4 7 ,48 7
1, 584 26 , 634 8 42 0 1, 690 6 17 46 , 884
4,611 28 4 0 85 9 0 5 , 75 4
4,200 5 91 0 3 98 0 5, 189
4,062 66 5 0 2 ,63 4 0 7 ,36 1
5, 890
3, 77 7
3, 734
7 60 12 , 533 8 69 28 , 443 41 , 845
58 1 10, 11 2 87 0 32 , 39 4 43, 37 6
69 8, 992 8 70 34 , 733 44 , 595
1 Q 20 E
2Q20E
3Q20E
4 Q 20E
1Q21E
7, 187 4,020 3, 664 2 11 1 5 ,0 82
7, 7 37 3,816 3, 5 88 21 1 15, 35 2
7, 389 3,939 3, 741 2 11 1 5, 280
7, 0 75 4,297 3, 5 21 21 1 1 5 ,10 4
7, 808 4,710 3 , 27 8 2 11 1 6, 007
1, 5 84 27, 01 4 84 2 0 1, 6 90 61 7 47 , 11 9
1, 584 2 8 ,0 44 8 42 0 1, 690 6 17 4 7 ,8 59
1, 5 84 29 , 0 2 4 84 2 0 1, 6 90 61 7 49, 10 9
1, 584 2 9, 954 8 42 0 1, 690 6 17 4 9, 967
1, 5 84 3 0 ,83 4 84 2 0 1, 6 90 61 7 5 0 ,67 1
1, 584 3 1, 664 8 42 0 1, 690 6 17 5 2, 404
4,193 6 65 0 2, 634 0 7, 492
3,864 66 5 0 2, 6 34 0 7, 1 63
3,845 6 65 0 2, 634 0 7, 144
4,365 66 5 0 2, 6 34 0 7, 6 64
4,344 6 65 0 2, 634 0 7, 643
3,855 66 5 0 2, 6 34 0 7, 1 54
3,822 6 65 0 2, 634 0 7, 121
3 ,60 4
3, 604
3, 6 04
3, 604
3, 6 04
3, 604
3, 6 04
3 , 6 04
69 1 1 ,03 4 87 0 3 5 ,58 3 4 7 ,48 7
69 11 , 165 8 70 34 , 849 46 , 884
69 10, 83 6 87 0 35, 41 3 47, 11 9
69 1 0 ,8 17 8 70 3 6 ,1 72 4 7, 7,8 59
69 11, 33 7 87 0 36, 90 2 49 , 10 9
69 1 1, 316 8 70 3 7, 780 4 9, 967
69 1 0 ,82 7 87 0 3 8 ,97 4 5 0 ,67 1
69 1 0, 794 8 70 4 0, 739 5 2, 404
3Q20E
4 Q20E
1Q21E
10 33
1 34 8
17 22
Source: Company reports and J.P. Morgan estimates. Table 5: MU Cash Flow Statement
$ in millions CASH FLOW FROM OPERATING ACTIVITIES GAAP Net income (loss) Net cash provided by operating activities: Loss from discontinued operations Depre ciati on and amo rti zation Amortization of debt discount & financing financing costs S tock bas ed com pe nsat i on L oss on e xti n gu i sh m e nt of debt E qui ty in net (income) losses of eqiuty method investees , n e Non-cash restructuring charges (Gain) Non-c ontrol ling int erest Inventory write-down Loss from write-down/sale of equipment (currencyhedges) Loss (gain) from write-down/sale of investments Gain from acq . Of Numonyx /MMJ Acq Other Changes in working capital Receivables Inventories Deferred i ncome t axes, net Other current assets Account payable & accrued expenses Deferred income taxes Other (customer prepayments) NET CASH PROVIDED BY OPERATING ACTIVITIES CASH FLOW FROM INVESTING ACTIVITIES: P roperty, pl ant and equipm ent, net of sales P roceeds from sales of property, plant and equ ipm ent S ale/(Purchas es) of securit ies Increase in restricted cash Acquisitions/dis positions Proceeds from sale of Hynix JV Cash form acq. Of Numonyx/Elpida Additions to /Return of Equity Equity method investment investment Other NET CASH USED IN INVESTING ACTIVITIES CASH FLOW FROM FINANCING ACTIVITIES: I ssu ance/(Repaym e nt s) of de debt Proceeds from equipment sale-leaseback P roceeds from i ssuance of com m on sto ck P roceeds from is suances of warrants/ Debt Payments on equipment purchase contracts D ist ributi on/acquisi tion to/from noncontroll ing i nterests Purchase of call spread options Debt issuance costs Other (inc. Share repurchases starting in F Y19) Net cash from finan cing activities E ffect on changes in forex Net change in cash Ca sh and e qui valents at beginning of per iod Cash and equivalents at end of period
Source: Company reports and J.P. Morgan estimates.
1Q18A
2Q18A
3 Q1 8A
4Q18A
1Q19A
2 Q1 9E
3Q19E
4Q19E
1 Q2 0E
2Q20E
2 678
3309
382 3
43 25
329 3
1 619
581
67 4
914
8 83
1 119
1177
125 6
13 08
133 5
1 342
140 0
1 450
15 00
51 1 95 0
52 23 (1)
48 168 2
47 (1) (1)
61 (14) 0
57
57
60
66
66
66
66
264
(1)
0
0
0
0
0
0
0
0
2
0
1
3
6
0
0
0
0
(58) 36 0
(2 80) 571
2 04 76
(122) (153)
(35 8) 2 20
(413 ) 243
(329)
(19)
5 20
(21)
(48 9)
(3 3)
2 157
27 51
3 300
24 02
2 43 7
34 82
(1)
18
(29)
18
62
(54 7) ( 18 4 ) 16
(557) (226) (19)
1 89 (2 86) 1 92
1 002 (514 )
734 (205)
(261)
354
(55 )
51 1
(46)
(138 )
131
229
(28 4)
(204)
65
4348
426 1
51 55
481 0
58 (1 434)
(2261 ) 0 (183)
35 ( 2409 )
(2 100) 0 52
(19 6) (2 244)
(206 2) 0 30 0
(367) (212 9)
(2700) 0 (2047)
(268 6) 0
3 20 ( 4427)
194 (249 2)
(342 7)
(5 77)
1 672
(2 744)
(635)
(3 388)
1 472 1 50
82 500
82 319
19 40
15
(107 )
0
0
0
0
(37)
119
17 00
0
(509) (25) (262)
(1 956) 0 4 64
1 65 0
0
12
3 435
16 00
0
(121) (37)
3 636
1 550
269 8
(1 80 0) 0
(18 00) 0
(2500 ) 0
(25 00) 0
(250 0) 0
(2 500) 0
(250 0) 0
0 ( 1 80 0)
0 (18 00)
0 ( 2500 )
0 (25 00)
0 (250 0)
0 (2 500)
0 (250 0)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(160) (1 282)
(85) ( 138)
(36 ) (3 023)
35 (333 3)
(1836) ( 2435)
(732 ) 952
(200) (200)
(200) (200)
(2 50) ( 2 50 )
(25 0) ( 25 0 )
(250) (250)
(25 0) ( 25 0 )
(250 ) ( 250 )
6 9 26 5 093 6 019
0 1801 6019 7820
(10 ) (1 016) 782 0 680 4
0 (307) 68 04 64 97
(10) ( 2062) 649 7 443 6
0 1 895 4 436 6 331
0 698 633 1 702 8
0 15 7 7 028 7 185
0 1 71 85 71 87
0 5 50 7 187 7 737
0 (348) 77 37 73 89
0 (31 3) 7 38 9 7 07 5
0 732 70 75 78 08
Harlan Sur (1-415) 315-6700 [email protected]
North America Equity Research 21 March 2019
Investment Thesis, Valuation and Risks Micron Technology, Inc. (Overweight; Price Target: $64.00) Investment Thesis
Longer term, the company’s increasing product (DRAM, NAND, NOR) and endmarket diversification should dampen revenue/earnings volatility and also position the company to do well in markets (handset) (handset) that require multiple multiple types of memory. Micron should benefit from secular trends in in mobile DRAM, which should help it reduce volatility to commodity DRAM. Post the Elpida acquisition, we believe Micron will be positioned well to benefit from secular trends in mobility, networking, networking, and cloud computing. New technology, divestiture divestiture of non-core assets, and cost-cutting efforts should help it improve gross margins and profitability in the coming quarters.
Valuation
Our Dec 2019 price price target of $64 assumes that Micron should should trade at ~10x (in-line with the memory/storage peer group average) applied to mid-cycle earnings power of ~$6.40. We believe memory fundamentals remain solid in the midterm, and management’s focus on improving margin profiles across business segments (particularly in its NAND segment) should drive better profitability. Above-average upside potential from current current levels drives our Overweight rating. Risks to Rating and Price Target
Micron competes in extremely competitive markets—operational execution is critical. Any sudden weakness in demand outlook for PCs could reduce our estimates on DRAM price recovery and memory content growth. An aggressive ASP decline combined with lower per gigabit manufacturing cost reduction could cause us to lower our revenue and earnings estimates. Any imbalance in DRAM and NAND supply/demand could cause us to lower our revenue and earnings estimates. Our NAND demand assumptions could change the overall growth for the sector if we continue to see a further supply/demand disconnect. Any macroeconomic-driven demand softness could potentially result in lower demand for Micron’s products and could impact revenues/profitability profile for the company.
North America Equity Research 21 March 2019
Harlan Sur (1-415) 315-6700 [email protected]
Micron Technology: Summary of Financials Inccom In omee Sta tate teme ment nt - An Annu nual al
FY1 Y17A 7A FY FY18 18A A FY1 FY19E FY FY20 20E E FY FY21 21E E Inc nco ome Sta tate teme men nt - Qu Quar arte terl rlyy
Revenue
20,322
COGS
30,391
23,424
20,952
(11,886) (12,500) (12,484) (12,777)
-
Gross profit
8,436
17,891
10,940
8,174
-
Gross profit
(743)
(813)
(848)
(880)
-
SG&A
Adj. EBITDA
9,854
19,854
13,040
11,117
-
Adj. EBITDA
D&A
(3,986) (4,860) (5,527) (6,300) 5,868
14,994
7,513
4,817
Net Interest
(672)
(479)
51
(40)
7,913A
- COGS
SG&A
Adj. EBIT
1Q19 1Q 19A A 2Q19 2Q19A A 3Q1 Q19E 9E 4Q 4Q19 19E E
Revenue
- D&A -
- Net Interest
Adj. PBT
5,196
14,307
7,173
4,777
-
(114) (1)
(168) (3 ( 3)
(998) (9 ( 9)
(600) 0
- Tax - Minority Interest
Adj. Net Income
-
4,800
4,876
4,615A
2,864A
1,805
(209)A
(209)A
(215)
1,656
(215)
5,094A
3,299A
2,373
2,274
(1,335)A (1,342)A (1,400) (1,450)
Adj. EBIT
Tax Minority Interest
5,835A
(3,298)A (2,971)A (2,995) (3,220)
Adj. PBT
Adj. Net Income
3,759A
1,957A
973
824
5A
31A
25 25
(10)
3,773A
1,904A
682
814
(477)A (3)A
(280)A (6)A
(101) 0
(1 40 ) 0
5,648
14,700
7,188
4,468
3,508A
1,970A
964
746
Reported EPS
4.38
11.46
5.31
3.64
- Reported EPS
2.79A
1.41A
0.51
0.59
Adj. EPS D PS
4.86 -
11.91 -
6.19 -
3.90 -
-
2.97A -
1.71A -
0.85 -
0.66 -
Adj. EPS DPS
Payout ratio Shares outstanding Bala Ba lanc ncee Sh Shee eett & Ca Cash sh Fl Flow ow St Stat atem emen entt Cash and cash equivalents Accounts receivable Inventories Other current assets
1,163 1,234 1,161 1,147 FY17 FY 17A A FY1 FY18A 8A FY FY19 19E E FY2 FY20E 0E FY FY21 21E E 5,428 6, 6 ,802 7, 7 ,185 7, 7 ,075 3,759 5,478 3,741 4,297 3,123 3,595 4,235 3,521 147 164 211 211 -
Current assets
12,457
16,039
15,372
15,104
-
PP&E LT investments Other non current assets
19,431 3,448
23,672 3,665
27,014 4,733
30,834 4,733
35,336
43,376
47,119
50,671
Short term borrowings Payables Other short term liabilities
1,262 3,664 408
859 4,611 284
2,634 3,864 665
2,634 3,855 665
Current liabilities
5,334
5,754
7,163
7,154
Long - erm debt Other long term liabilities
9,872 660
3,777 581
3,604 69
3,604 69
15,866
10,112
10,836
10,827
18,621 849
32,394 870
35,413 870
38,974 870
- ROE - ROA - ROCE - SG&A/Sales Net debt/equity - P/E (x) - P/BV (x) - EV/EBITDA (x) - Dividend Yield - Sales/Assets (x) - Interest cover (x) - Operating leverage
35,336
43,376
47,119
50,671
-
16.01 36.7%
26.26 6 4 .0 %
30.50 16.2%
33.97 11.4%
Net debt/(cash)
5,706 (2,166)
(947)
(837)
Cash Cash flow flow from from opera perati ting ng acti activi viti ties es
8,15 8,1533
13,10 3,1000
10, 10,890 890
Revenue y/y Growth EBITDA y/y Growth - Tax rate Adj. Net Income y/y Growth - EPS y/y Growth - DPS y/y Growth -
otal assets
otal liabilities
Shareholders' equity Minority interests otal liabilities & equity BVPS y/y Growth
o/w Depreciation & amortization o/w o/w Chan Change gess in work workin ingg capi capittal Cash Cash flow flow rom rom inve invest stin ing g acti activi viti ties es
o/w Capital expenditure
17, 17,400 400
3,986 4, 4,860 (1,2 (1,202 02)) (3, (3,209) 209)
5, 5,527 6, 6,300 4,80 4,8066 (2,1 (2,135 35))
(7,5 (7,537 37)) (8,2 (8,216 16)) (10, (10,51 519) 9) (10, (10,00 000) 0)
-
-
(5,253) (8,379) (8,986) (10,000)
-
25.8% 27.6% 38.4% 47.7% 349 349 (7, (7,776) 776) (1, (1,88 883) 3) (1, (1,00 000) 0)
-
(2,558) (10,194)
0
-
Net change in cash 965 1,408 698 (110) Adj. Free cash flow to firm 3,562 9,494 4,114 925 y/y Growth (279.1%) 166.5% (56.7%) (77.5%) Source: Company reports and J.P. Morgan estimates. Note: $ in millions (except per-share data).Fiscal year ends Aug. o/w - out of which
-
as % of sales Cash Cash flow flow fro from fina financ ncin ing g acti activi viti ties es
o/w Dividends paid o/w Net debt issued/(repaid)
1,095
Payout ratio Shares outstanding Rati Ra tio o An Anal alys ysis is Gross margin EBITDA margin EBIT margin Net profit margin
FY17A FY17 A 41.5% 48.5% 28.9% 27.8%
1,179A 1,149A 1,140 1,137 FY18 FY 18A A FY19 FY19E E FY FY20 20E E FY FY21 21E E 58.9% 46 46.7% 39.0% 65.3% 55.7% 53.1% 49.3% 32.1% 23.0% 48.4% 30.7% 21.3% -
36.8% 18.0% 22.2% 3.7% 0.3
57.6% 37.4% 44.4% 2.7% NM
21.2% 15.9% 16.4% 3.6% NM
12.0% 9.1% 9.7% 4.2% NM
-
8.3 2.5 5.3 -
3. 3.4 1.5 2.3 -
6. 6.5 1.3 3.5 -
10.3 1.2 4.2 -
-
0.6 0.8 0.5 0.4 14.7 41.4 - 277.9 5309.6% 313.9% 217.6% 339.9%
-
63.9% 49.5% 205.8% 101.5% 2.2% 1.2% 8457.6% 160.3% 7490.6% 145.3% -
-
(22.9%) (34.3%) 13.9% (51.1%) (48.0%) -
(10.6%) (14.7%) 12.6% (37.8%) (37.1%) -
Harlan Sur (1-415) 315-6700 [email protected]
North America Equity Research 21 March 2019
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Important Disclosures
Market Maker: J.P. Morgan Securities LLC makes a market in the securities of Micron Technology.
Market Maker/ Liquidity Provider: J.P. Morgan and/or an affiliate is a market maker and/or liquidity provider in the financial instruments of/related to Micron Technology.
Lead or Co-manager: J.P. Morgan acted as manager or co-manager in a public offering of securities or financial instruments (as such term is defined in Directive 2014/65/EU) for Micron Technology within the past 12 months.
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North America Equity Research 21 March 2019
Harlan Sur (1-415) 315-6700 [email protected]
Micron Technology (MU, MU US) Price Chart
Date OW $33
100
OW $28
OW $50
OW $40
OW $80
OW $60
OW $75
OW $84
80 OW $15 Price($)
OW $20 OW $25 OW OW $38
OW $55
OW $82
OW $55
60
40
20
Mar 16
Jun 16
Sep 16
Dec 16
Mar 17
Jun 17
Sep 17
Dec 17
Mar 18
Jun 18
Sep 18
Dec 18
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Apr 01, 2004. All share prices are as of market close on the previous business day.
Price Target ($)
31-Mar-16
OW
10.48
15.00
09-Sep-16
OW
17.45
20.00
19-Dec-16 OW
20.27
25.00
22-Dec-16 OW
20.58
28.00
06-Mar-17
OW
25.57
33.00
24-Mar-17
OW
26.47
38.00
30-Jun-17
OW
31.47
40.00
27-Sep-17
OW
34.18
50.00
10-Nov-17
OW
43.50
55.00
20-Dec-17 OW
43.98
60.00
23-Mar-18 0
Rating Share Price ($)
OW
58.92
80.00
22-May-18 OW
55.48
82.00
21-Jun-18
OW
58.95
84.00
OW
46.06
75.00
19-Dec-18 OW
34.11
55.00
Mar 19 21-Sep-18
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation recommendation or a rating. In our Asia (ex-Australia and ex-India) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com. Coverage Universe: Sur, Harlan: Advanced Micro Devices (AMD), Analog Devices (ADI), Applied Materials (AMAT), Broadcom Inc (AVGO), Cypress Semiconductor (CY), Inphi (IPHI), Integrated Device Technology (IDTI), Intel (INTC), KLA Corporation (KLAC), Lam Research (LRCX), MACOM (MTSI), Marvell Technology Group (MRVL), Maxim Integrated Products (MXIM), Mellanox Technologies (MLNX), Microchip Technology (MCHP), Micron Technology (MU), NVIDIA Corporation (NVDA), NXP Semiconductors (NXPI), ON Semiconductor Corporation (ON), Texas Instruments (TXN), Vishay Intertechnology (VSH), Western Digital (WDC), Xilinx (XLNX) J.P. Morgan Equity Research Ratings Distribution, as of January 02, 2019
J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients*
Overweight (buy) 46% 53% 44% 75%
Neutral (hold) 40% 47% 41% 65%
Underweight (sell) 14% 37% 15% 56%
*Percentage of subject companies within each of the "buy," "hold" and "sell" categories for which J.P. Morgan has provided investment banking services within the previous 12 months. For purposes only of FINRA ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above. This information is current as of the end of the most recent calendar quarter.
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North America Equity Research 21 March 2019
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North America Equity Research 21 March 2019
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North America Equity Research 21 March 2019
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March 20, 2019 | Equity Research
Micron Technology, Inc. MU: F3Q19 Guide Ahead Of Bear-Case Fears; Supply Rationalization Continues
Outperform/V/$50 Semiconductors & Semiconductor Cap Equipment Market Weight Earnings Estimate Revised Down
Our Call: While Micron’s F2Q19 results / / F3Q19 outlook highlights persisting weak DRAM and NAND Flash demand trends, we think shares have positively reacted to the company’s continued commitment to supply-side rationalization – or what we continue to view as positively indications on the company’s focus on driving sustained positive FCF. Micron now plans to idle ~5% of its DRAM wafer starts and reduce NAND Flash wafer starts by 5% (targeted at legacy nodes) – factored into the company’s F3Q19 GM% guide at 37%-40% and remaining a headwind in F4Q19. Micron expects these measures to enable the company to reach a more balanced inventory level in 2HC2019 – vs. a record $4.4B (~134 days) exiting F2Q19; we estimate +80% tied to WIP + raw materials w/ finished goods inventory at ~$843M exiting F2Q19. Micron further lowered its F2019 capex outlook - now guiding ~$9B vs. the prior $9.0-$9.5B guide – reiterating its focus on facility upgrade + cleanroom capex; reducing its DRAM bit supply growth to low/mid-teens (demand estimated to be a few percentage points higher). We / investors will continue to be focused on the company’s expectations of customer inventory levels to be worked down exiting mid-C2019, coupled with product cycle and seasonal demand improvements into 2HC2019. We are again reducing our forward estimates - C2019, C2019, C2020, C2020, and C2021 estimates from $22.5B/$5.26, $23.5B/$5.42, and $24.5B/$5.92 to $21.1B/$4.44, $20.6B/$4.11, $20.6B/$4.11, and $21.6B/$4.55. $21.6B/$4.55. Micron shares currently trade at ~4x EV/EBITDA on our C2020 estimates; ~1.3x tangible book (~$30/sh.). F3Q19 (May ‘19) Guide: Guide: Micron guided F3Q19 revenue / EPS at $4.6B-$5.0B / $0.75-$0.95 vs. our recently downward revised $5.056B/$1.01 estimate (street: $5.289B /$1.18). This is better than what we would consider to be the buy-side bear case scenario at sub-$0.60/sh. (per our discussions over the past few weeks) – we believe providing incremental confidence that we are assembling an EPS estimate bottom; sustaining positive FCF. Management guided guided F3Q19 gross margins at 37%-40% (vs. our prior 40.1% estimate); inclusive of unquantified underutilization charges that will continue into 2HC2019 and ongoing 3D XPoint absorption (-160bps in F2Q19). Opex is expected to be $785M +/-$25M, a ~12.5% implied tax rate for 2HF2019 (10.5% for F2019), and ~1.140B FD shares. Demand Outlook: (1) DRAM. Micron now views DRAM bit demand in the low-to-mid teens % y/y in C2019 (vs. prior guide of +16%); industry supply growth expected in mid-to-high teens % (IDC estimating +18.5% y/y). (2) NAND Flash: Micron expects industry demand to be in the mid-30% range (vs. prior ~35%), while industry supply growth in the high-30% range (vs. prior guide of slightly higher than demand; IDC estimating +40% y/y). Micron expects its NAND Flash supply to grow close to the industry rate (vs. prior guide of ~35% range). Micron expects its NAND Flash bit ship growth to be below the industry in C2020 as the company transitions from floating gate to replacement gate (e.g., charge trap).
Please see page 11 for rating definitions, important disclosures and required analyst certifications. All estimates/forecasts are as of 03/20/19 unless otherwise stated. 03/20/19 20:45:53 ET Wells Fargo Securities, LLC does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the report and investors should consider this report as only a single factor in making their investment decision.
$ EPS Q1 (Nov.) Q2 (Feb.) Q3 (May) Q4 (Aug.) FY CY FY P/EPS Rev.(MM)
2018A 2.45 2.82 3.15 3.53 11.96 12.48 3.4x 30,391
2019E Curr. Prior 2.97 A 1.71 A 0.79 0.86 6.35 4.44 6.3x 23,639
2020E Curr. Prior
NC 1.65 1.01 1.12
1.07 0.99 0.98 1.05
1.49 1.34 1.29 1.37
6.75
4.09 4.11 9.8x 20,525
5.48
Source: Company Data, Wells Fargo Securities, LLC estimates, and Reuters NA = Not Available, NC = No Change, NE = No Estimate, NM = Not Meaningful V = Volatile EPS excludes stock-based compensation, restructuring costs, acquisition costs, and other.
Ticker
MU
Price Target/Prior:
$50/NC
Price (03/20/2019) 52-Week Range: Shares Outstanding: (MM) Market Cap.: (MM) S&P 500: Avg. Daily Vol.: Dividend/Yield: LT Debt: (MM) LT Debt/Total Cap.: ROE: 3-5 Yr. Est. Growth Rate: CY 2019 Est. P/EPS-to-Growth: Last Reporting Date:
$40.13 $28-65 1,121.0 $44,985.7 2,824.23 29,135,300 $0.00/0.0% $3,604.0 8.0% NE NE NM 03/20/2019
NC = No Change Source: Company Data, Wells Fargo Securities, LLC estimates, and Reuters
Aaron Rakers, CFA Senior Analyst |314-875-2508 [email protected]
Joe Quatrochi, CFA Associate Analyst | 3 1 4 - 8 7 5 - 2 0 5 5 j oe . qu a tr oc hi @w e ll sf a r go .c o m
Jake Wilhelm, CFA, CPA Associate Analyst | 3 1 4 - 8 7 5 - 2 5 0 2 ja k e .w i lh e lm @w e l ls fa r go . co m
Michael Tsvetanov Associate Analyst | 3 1 4 - 8 7 5 - 2 5 5 8 [email protected]
Semiconductors & Semiconductor Cap Equipment
What Matters Most F3Q19 (May ‘19) Guide / Outlook Commentary
Wells Fargo Notes / Thoughts
F2Q19 Results Summary
DRAM
F3Q19 (May) Guide: Micron guided F3Q19 revenue/EPS at $4.6B-$5.0B / $0.75-$0.95 vs. our recently downward revised $5.056B/$1.01 estimate (street: $5.289B /$1.18). Micron expects DRAM bit ship to increase q/q in F3Q19 and at “much higher rates” in F4Q19. NAND bit ship is expected to decline modestly in F3Q19 due to timing and return to growth in the August quarter. Management guided F3Q19 gross margins at 37%-40% (vs. our prior 40.1% estimate); inclusive of underutilization charges that will continue into 2HC2019. F3Q19 operating expenses are expected to be $760M-$810M (note: Micron has realized declining R&D payments as a contra impact to opex over the past few quarters). Micron expects a fully diluted share count of ~1.14B. F2019 Capex: Micron again cut its F2019 capex guide, now at ~$9B vs. the prior $9.0-$9.5B guide (original F2019 guide was $10.5B +/-5%; vs. $8.2B in F2018). Micron reiterated that frontend equipment spending will decline y/y in F2019, while it remains focused on node transitions, clean room / building buildout and upgrades; no new wafer capacity planned. C2019 DRAM Outlook: Micron now views DRAM bit demand in the low-to-mid teens % y/y in C2019 (vs. prior guide of +16%); industry supply growth expected in mid-to-high teens % (IDC estimating +18.5% y/y). Micron has again taken action to reduce its bit output and plans to idle 5% of its wafer starts to control production. C2019 NAND Outlook: Micron expects industry demand to be in the mid-30% range (vs. prior ~35%), while industry supply bit growth in the high-30% range C2019 (vs. prior expectation of slightly higher than demand; IDC estimating +40% y/y). The company has taken further action to reduce its bit supply growth by reducing NAND wafer starts by 5% (targeted at legacy nodes) – now expected its supply to grow close to industry bit demand (vs. prior guide of ~35% range). Micron expects its NAND Flash bits ship growth to be below the industry in C2020 as the company transitions from floating gate to replacement gate (e.g., charge trap). Revenue/EPS: Revenue/EPS of $5.835B / $1.71/sh. (revenue –26.3% seq. and -20.6% y/y) compared to our recently revised $5.844B/$1.65/sh. estimate and consensus estimate of $5.802B/$1.60/sh. vs. revenue guidance of $5.7B-$6.3B and non-GAAP EPS guidance of $1.75/sh. at the midpoint (range: $1.65-$1.85/sh.). Opex: $818M compared to our estimate of $805M (street: $803M); guide of $775M-$825M. Inventory: We continue to focus on inventory levels given the supply vs. demand dynamics in DRAM and Flash. Micron exited F2Q19 with $4.39B of inventory +13% q/q and 38% y/y ~134 days of inventory. Micron expects inventory to be up sequentially in F3Q19 (trending to ~150 days range), however, production cuts should begin to result in inventory reductions into 2HC2019 and C2020. Cash Flows: Adj. FCF of $988M compared to $2.35B in the prior quarter, CFO of $3.435B vs. $4.81B in the prior quarter, and net capex capex of $2.45B vs. $2.46B in the prior period. DRAM Revenue: DRAM revenue of $3.734B compared to $5.38B in F1Q19 and $5.21B a year ago (-30% q/q and -28% y/y). This compares to our $4.0B estimate (street: $3.940B). DRAM ASPs: ASPs decline in the low 20% range q/q vs. down high-single digit % in F1Q19. This compares to our estimate of -12.5% q/q and consensus estimate of -17.7% q/q.
Shipments: Shipments declined in the low double digit % q/q vs. our estimate of -15% q/q.
GM%: We estimate DRAM GM% in the low-50% range vs. high-60% estimate in F1Q19.
NAND
Equity Research
Technology: Micron noted that 1Ynm is yielding well and it expects increasing conversion to the node in 2HF2019. Micron noted progress on 1Znm and began sampling products in F2Q19. NAND Revenue: Micron’s NAND Micron’s NAND revenue was ~$1.75B in F2Q19 (-18% q/q and -2% y/y), ahead of our $1.62B estimate (street: $1.538B). NAND ASPs: ASPs down in the mid 20% range vs. a low to mid-teens % decrease in the prior quarter. This compares to our estimate of -15.5% q/q and the consensus estimate of -17.1% q/q. Shipments: Bit shipments increased in the high single-digits % q/q vs. our estimate of a 12.5% sequential decrease; implying 66% y/y vs. ~70% in the prior period. Micron noted that NAND shipments were stronger than expected due to the timing of demand from a large customer. GM%: NAND gross margin in the high 30% range vs. >45% in the prior period and 47% a year ago. We would again highlight the mix benefit to managed NAND / SSDs – disclosed at >67% of NAND revenue in 1H F2019 vs. 55% in 1H F2018 (>50% in F1Q19); F2021 target at ~80%. Technology: After beginning 96-Layer shipments in F1Q19, Micron reported that it achieved meaningful production in the quarter – also noting that the 96-Layer achieved the fasted yield ramp of any NAND product in Micron history. The company expects that its first replacement gate node (4th Gen 3D NAND) will provide limited cost reduction and will be deployed across select NAND products only. Micron noted that it began revenue shipments of its first NVMe client SSD to a large PC OEM; company intends to introduce cloud and enterprise NVMe SSDs later in C2019.
2 | Wells Fargo Securities, LLC
Equity Research
Micron Technology, Inc.
Micron Estimates Summary: Source: Company Company Data; Factset; Wells Fargo Securities, LLC E stimates F2Q19
F3Q19E
Feb-19
Reported DRAM Revenue - DRAM ASP ($/Gb ) - Q /Q % C hg. - DRAM ASP ($/Gb ) - Y/Y % C hg. - DRAM Bits Ship pe d - Q /Q % C hg . - DRAM Bits Ship pe d - Y/Y % C h g. Trade NAND Revenue - Tra d e NAND Fla s h ASP ($ /Gb) - Q /Q % Ch g. - Tra d e NAND Fla s h ASP ($ /Gb) - Y/Y % C hg. - Tra d e NAND Fla s h Bits Shipp e d - Q/Q % C hg. - Tra d e NAND Fla s h Bits Shipp e d - Y/Y % C hg .
WFS Es Est.
May-19
Street Est.
New WF WFS
W FS FS Ol Old Est.
$3.734 (2 2%) (2 4%)
$4.002 (13%) (15%)
$3.940 (18%) n/a
$2.971 (2 2%) (4 5%)
$3.425 (19%) (36%)
(1 1%) (5%)
(15%) (9%)
(8%) n/a
2% (3%)
5% (4%)
$1.776 (2 6%) (4 1%)
$1.615 (16%) (33%)
$1.538 (17%) n/a
$1.480 (1 5%) (5 3%)
$1.412 (7%) (42%)
(13%) 33%
(14%) n/a
(2%) 6 4%
(6%) 26%
9% 6 6%
Street Est. $3.663 (14%) n/a 9% n/a $1.413 (11%) n/a
Total O ther
$0.324
$0.227
$0.094
$0.315
$0.219
n/a
$5.835
$5.844
$5.802
$4.765
$5.056
$5.289
Gro s s Ma rgin To ta l Op. Expe ns e s Ope ra tin g Inco me - O pe ra ting Inco me Ma rgin
50.2% $ 0.818 $ 2.110 36.2%
50 .2% $0.805 $2.128 36 .4%
49 .9 % $0.80 3 $2.09 4 36.1%
37.6% $0.785 $1.007 21.1%
40 .1 % $0.76 1 $1.26 5 25 .0 %
45 .4 % $0.78 7 $1.61 2 30 .5 %
EBITDA - EBITDA Ma rgin
$ 3.430 58.8%
$3.450 59 .0%
$3.44 0 59 .3 %
$2.329 48.9%
$2.61 2 51 .7 %
$3.00 6 56 .8 %
Cash Flow from O perations - C a p ita l Expe nd iture s Free Cash Flow
$2.154 $1.71 1.149
$3.435 $ 2.686 $0.749
DRAM Revenue
$4.023 $3.052 $0.971
Fiscal Year Summary: New WFS
$2.153 $1.65 1.150
$1.811 $1.63 1.111
$4.068 $2.36 4 $1.632
$1.042 $0.79 1.140
$4.166 $2.282 $1.883
$1.290 $1.01 1.130
$1.333 $1.18 1.130
$3.256 $1.88 8 $1.368
$3.280 $2.22 3 $0.935
F2 0 1 9 E
F2 0 2 0 E
Aug-19
Aug-20
WFS O ld Est.
Street Est.
New WFS
W FS O ld Est.
F3Q19 GM% Guide at 37%-40% F3Q19 Opex: $785M +/-$25 million F3Q 19 Non-GAAP EPS: $0.75-$0.95/sh.
9% n/a
Total Revenue
Net Income Non-GAAP EPS - Sha re s O uts ta n ding
Micron O ut utlook; We Wells Q ui uick No Notes F3Q 19 Total Revenue Guide: $4.6-$5.0 billion * Micro n e xpe cts DRAM indu stry bit s upp ly gro w th mid -to h ig h te e ns % y/y i * Micro n e xpe cts NAND Fla sh ind ustry b it sup ply gro w th in h igh 30% ra ng e
F2021E Aug-21
Street Est.
New WFS
WFS O ld Est.
$15.154 (3 0%) 3%
$16.549 (22%) 0%
$17.087 (17%) n/a
$12.074 (3 4%) 2 1%
$15.469 (21%) 19%
$16.320 (14%) n/a
$12.171 (1 2%) 1 5%
$15.716 (12 %) 15 %
- Tra d e NAND Fla s h ASP ($ /Gb) - Y/Y % C hg. - Tra d e NAND Fla s h Bits Shipp e d - Y/Y % C hg .
$7.197 (4 3%) 6 2%
$6.954 (35%) 35%
$6.849 (29%) n/a
$7.165 (2 6%) 3 5%
$7.109 (20%) 29%
$6.697 (18%) n/a
$8.004 (1 8%) 3 6%
$7.942 (18 %) 36 %
Total O ther
$1.289
$0.995
n/a
$1.286
$0.826
$0.090
$1.299
$0.775
Total Re R evenue
$23.639
$24.498
$24.633
$20.525
$23.404
$24.126
$21.474
$24.433
- DRAM ASP ($/Gb ) - Y/Y % C hg. - DRAM Bits Ship pe d - Y/Y % C h g. Trade NAND Revenue
Gross Margin ( %) To ta l Op. Expe ns e s O perating Income - O perating Income Margin
47.7% $ 3.174 $8.092 34.2%
48.1% $3.110 $8.673 35.4%
50.5% $3.34 3 $9.097 36.9%
39.7% $3.090 $5.061 24.7%
41.9% $3.12 5 $6.678 28.5%
46.2% $3.78 8 $7.356 30.5%
39.9% $3.164 $5.405 25.2%
42.0% $ 3.1 90 $7.066 28.9%
EBITDA - EBITDA Ma rgin
$1 3.464 5 7.0%
$ 14.192 57.9%
$ 14.76 1 59.9%
$1 0.613 51.7%
$ 12.778 54.6%
$13.68 0 56.7%
$1 1.046 51.4%
$13 .2 61 5 4.3 %
Net Income Non-GAAP EPS - Sha re s O uts ta n ding
$7.359 $6.35 1.150
$7.801 $6.75 1.145
$7.873 $6.98 1.128
$4.522 $4.09 1.106
$6.065 $5.48 1.106
$6.277 $5.70 1.101
$4.773 $4.44 1.076
$6.222 $5.79 1.076
$11.199 $7.731 $3.469
$13.707 $ 8.7 96 $4.911
Cash Flow from O perations - C a p ita l Expe nd iture s Free Cash Flow
$15.233 $ 8.936 $6.297
$15.624 $9.064 $6.560
$15.095 $9.42 6 $5.201
$10.964 $7.594 $3.370
$14.133 $8.65 9 $5.474
$13.685 $9.29 1 $1.156
Wells Fargo Securities, LLC | 3
Equity Research
Semiconductors & Semiconductor Cap Equipment
Wells Fargo Rating Rating::
Micron Technology
Outperform Price Target: $50
Income Incom e Statemen Statementt Summ Summary ary (Calendar Year):
Cash Flow / Free Cash Flow Summ Summary ary
$ in Billions; Except per Share
$ in Billions 2017
D RA RA M R ev ev en en ue ue Fla sh Rev enue Othe r Rev enue T ota l Re Re v e nue Conse nsus Est. (Fa ctSet)
2020E
2021E
$12.606
$12.397
$1 1 . 3 7 6 $ 1 8 . 8 9 5 4 9 .1 % 60 . 0 %
$11.779
$ 8 .6 8 6 4 1 .2 %
$8 . 1 7 6 3 9 .7 %
$ 8 .7 0 8 4 0 .3 %
$0.767 $2.239 ($0.084) $ 2 .9 2 2
$0.723 $2.346 $0.088 $ 3 .1 5 7
$0.707 $2.397 $0.000 $3 . 1 0 4
$0.728 $2.453 $0.000 $ 3 .1 8 1
$ 8 . 95 1 $ 1 5 . 9 7 3
$ 5 .5 2 8 $7.277 2 6 .2 %
$5 . 0 7 2 $7.870 2 4 .6 %
$ 5 .5 2 7
Operating Expenses: S G&A Ex pe ns e R& R&D Expense Other Ex pe nse T ota l Oper ating E x pe ns es
$0.685 $1.746 ($0.006) $ 2 . 42 5
Non- GAAP E BIT Consensus Est. (FactSet) - E BIT Ma rgin % De pre ciation & Amortiza tion E BIT DA - E BIT DA Mar gin % Othe r Inc ome (Ex pe nse )
2 0 19 E
$ 15 15 .1 .1 04 04 $2 2. 2. 05 05 1 $1 2. 2.8 77 77 $ 12 12 .0 .0 55 55 $1 2. 2. 19 19 1 $6.822 $8.161 $6.907 $7.249 $8.091 $1.229 $1.289 $1.299 $1.297 $1.337 $2 3 . 1 5 5 $ 3 1 . 5 0 1 $ 2 1 . 0 8 3 $ 20 . 6 01 $ 2 1 . 6 1 9 $22.890 $25.468
C ost of G oods Sold Gr os s In Incom e - Gr os s Ma rgin
2 0 18
3 8 .7 %
50 . 7 %
$12.425
$12.911
2 5 .6 %
$4.180 $5.004 $5.471 $5.521 $5.693 $ 1 3 . 1 3 1 $ 2 0 . 9 7 7 $ 1 0 . 9 9 9 $ 10 . 5 93 $ 1 1 . 2 2 0 5 6 .7 % 66 . 6 % 5 2 .2 % 5 1 .4 % 5 1 .9 % ($0.407) ($0.025) $0.154 $0.120 $0.120
Pre - T a x Inc ome Ta x Rate Net Income Non- GAAP E PS Cons ensus Est. (FactSe t) - Fully Dilute d S hare s
$ 8 . 54 4 $ 1 5 . 9 4 8 2.9% 4.6% $ 8 . 30 8 $ 1 5 . 2 1 4 $ 7 .0 0 $12.48 1.179
1.219
$ 5 .6 8 2 10.9% $ 5 .0 4 6 $ 4 .4 4 $5.56 1.134
$5 . 1 9 2 $ 5 . 6 4 7 12.8% 13.4% $4 . 5 0 9 $ 4 . 8 7 1 $4.11 $ 4 .5 5 $6.07 1.097 1.071
2 01 7
$ in Billions
2017
2 0 18
2 0 19 E
2020E
2021E
$1.585 $0.000 $4.120 $3.551 $0.000 $0.211 $ 9 .4 6 7
($5.365) ($10.864) $0.000 $0.000 $3.747 $3.847 $3.687 $3.779 $0.000 $0.000 $0.211 $0.211 $2 . 2 8 0 ( $ 3 . 0 2 7 )
C as ash & Sh Short-Term In Inve stme nts S hort-Term In Inve stme nts Re ceiv ables Inve ntories Re stricted C a sh Othe r C urre nt A sse ts T ota l Curre nt As se ts
$6.008 $4.447 $0.166 $1.116 $3.876 $5.418 $3.160 $3.876 $0.000 $0.000 $0.148 $0.182 $1 3 . 3 5 8 $ 1 5 . 0 3 9
Long-Te rm Ma rk etable Inv estments P ro rop er er ty ty , P la la nt nt a nd nd Eq ui uip me me nt nt, Ne t Equity Me thod Inve stme nts Intangible A sse ts, Net De fe rre d Ta x A ssets Goodwill Othe r Non-C urre nt A sse ts T ota l Long- T e rm As se ts
$0.314 $1.565 $1.614 $1.614 $1.614 $20.723 $24.807 $26.000 $27.250 $29.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.368 $0.356 $0.315 $0.305 $0.275 $0.731 $0.842 $0.000 $0.000 $0.000 $0.000 $1.228 $0.000 $0.000 $0.000 $1.697 $0.758 $3.119 $3.119 $3.119 $2 3 . 8 3 3 $ 2 9 . 5 5 6 $ 3 1 . 0 4 8 $ 32 . 2 88 $ 3 4 . 0 0 8
T OT AL ASSE T S:
$3 7 . 1 9 1 $ 4 4 . 5 9 5 $ 4 0 . 5 1 5 $ 34 . 5 68 $ 3 0 . 9 8 1
A cc ccounts Pa ya ya bl ble a nd nd A cc ccrued Ex pe pe ns ns es es De fe rre d In Income C ur urrent D eb ebt (Includes C ap apital Lea se ses) T ota l Curre nt Lia bilitie s
$3.766 $0.416 $1.401 $ 5 . 58 3
$4.200 $0.000 $0.398 $ 5 .1 8 9
$4.667 $0.000 $2.634 $ 7 .3 0 1
$4.425 $0.000 $2.634 $7 . 0 5 9
$4.434 $0.000 $1.200 $ 5 .6 3 4
Lo ng ng -T -Te rm rm D eb ebt (I nc nc lu lude s C ap api ta ta l Le as as es es ) $7.644 Othe r Non-C urre nt Lia bilitie s $0.553 T ot ota l Lo ng ng -T -T e err m Lia bi bilti es es $ 8. 8. 19 19 7
$3.734 $0.834 $ 4. 4.5 68 68
$3.604 $0.000 $ 3. 3.6 04 04
$3.604 $0.000 $3 .6 .6 04 04
$5.500 $0.000 $ 5. 5.5 00 00
T OT AL LIABILIT IE S: $1 3 . 7 8 0 $ 9 . 7 5 7 $ 1 0 . 9 0 5 $ 10 . 6 63 $ 1 1 . 1 3 4 Tota l Sh Shareholders' Eq Equity $22.526 $33.869 $28.747 $23.042 $18.984 - N on on-C on ontrolling In Interes t in Su Subsidia ririe s $0.867 $0.870 $0.863 $0.863 $0.863 Total Total Shareh Sharehold olders' ers' Equit Equity y + Liabi Liabilit lities ies $37.19 $37.191 1 $44.49 $44.498 8 $40.51 $40.515 5 $34.56 $34.568 8 $30.98 $30.981 1 Source: Company Data; FactSet; Wells Fargo Securities, LLC Estimates
4 | Wells Fargo Securities, LLC
2019E
2020E
2021E
Ne t Inc om e $ 7 .5 8 8 $ 1 4 .7 5 6 $ 3 .5 0 9 $ 5 . 1 99 $ 5 .6 8 7 D & A Ex pe nse $4.180 $5.004 $5.493 $5.521 $5.693 S tock -Ba se d C ompensation $0.220 $0.208 $0.185 $0.280 $0.320 O ther $0.335 $0.266 $0.000 $0.000 $0.000 Net Net Work Workin ing g Capit Capital al ($1. ($1.67 672) 2) ($1. ($1.85 852) 2) $1.7 $1.740 40 ($0. ($0.00 005) 5) ($0. ($0.18 183) 3) Cash Cash Flow Flow from from Operat peratio ions ns $10. $10.65 651 1 $18. $18.38 382 2 $10. $10.92 927 7 $10. $10.99 995 5 $11. $11.51 517 7 - C apita l Expenditure s ($5.426) ($9.623) ($7.695) ($6.695) ($7.567) F re e Ca Ca sh F low - F CF / Sha re
$ 5 .2 2 5 $ 4 .4 3
$ 8 .7 5 9 $ 7 .1 8
$ 3 .2 3 2 $2.85
$ 4 . 3 00 $ 3 .9 2
$ 3 .9 5 0 $ 3 .6 9
2 01 7
2018
Ratios & Valuation: P/E EV / EBIT EV / EBITD A EV / S ale s FC F Yie ld Debt / EBITDA (TTM) Debt / Equity A ccounts Re ceiv ables Turns Inve ntory Turns A ccounts P ay ables Turns
2019E
2020E
2021E
7.1x 5.92x 4.04x
4.0x 3.32x 2.53x
11.3x 9.59x 4.82x
12.2x 10.46x 5.01x
11.0x 9.59x 4.73x
2.29x 9.9% 0.69x 40.2%
1.68x 16.5% 0.20x 12.2%
2.52x 6.1% 0.57x 21.7%
2.57x 8.1% 0.59x 27.1%
2.45x 7.4% 0.60x 35.3%
7.32x 3.99x 2.97x
6.78x 3.58x 3.16x
4.42x 3.34x 2.80x
5.24x 3.43x 2.73x
5.69x 3.46x 2.91x
5-Year Price / Book Value
4.0x
Balance Sheet Summary
2018
3.5x +1 Stan dard Deviation
3.0x 2.5x
Medi an: 2.1x 2.1x 2.0x 1.5x -1 Standard Deviation Deviation 1.0x 0.5x 0.0x 3 1 / 1 1 / 2 1
4 1 / 1 1 / 3
4 1 / 1 1 / 6
4 1 / 1 1 / 9
4 1 / 1 1 / 2 1
5 1 / 1 1 / 3
5 1 / 1 1 / 6
5 1 / 1 1 / 9
5 1 / 1 1 / 2 1
Source: FactSet; Wells Fargo Securities, Securities, LLC
6 1 / 1 1 / 3
6 1 / 1 1 / 6
6 1 / 1 1 / 9
6 1 / 1 1 / 2 1
7 1 / 1 1 / 3
7 1 / 1 1 / 6
7 1 / 1 1 / 9
7 1 / 1 1 / 2 1
8 1 / 1 1 / 3
8 1 / 1 1 / 6
8 1 / 1 1 / 9
8 1 / 1 1 / 2 1
9 1 / 1 1 / 3
Equity Research
Micron Technology, Inc.
DRAM Micron DRAM Capacity Capacity Shi pped (Exabytes); Bl ended ASP ($/Gb) ($/Gb)
Micron DRAM Rev enue ($B); Y/Y Y/Y % Change $6.5
150%
$6.0
125%
Y/Y % Change
$5.5
$21.00 $19.50
1.6 $18.00
1.5
100%
$5.0 $4.5
75%
$4.0 50%
$3.5 $3.0
25%
$2.5 0%
$2.0 $1.5
-25%
1.4
Est. Capacity Shipped (Exabytes)
$16.50
1.3
Est. Blended ASP ($/Gb)
$15.00 )
B
1.2
/ $13.50 G $
d e1.1 p p i h1.0 S s0.9 e t y b0.8 a x0.7 E
( P
$12.00 S A
$10.50 M $9.00 $7.50
0.6 0.5
$6.00
0.4
$4.50
0.3
$1.0 -50%
$0.5 $0.0
1.8 1.7
Revenue ($B)
$3.00
0.2 $1.50
0.1 1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 E E E E E E 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 9 9 0 0 0 0 1 1 2 2 2 2 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 Q Q Q Q Q Q F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F 3 4 1 2 3 4 F F F F F F
-75%
A R D d e d n e l B
0.0
1 1 Q 1 F
1 1 Q 3 F
2 1 Q 1 F
2 1 Q 3 F
3 1 Q 1 F
3 1 Q 3 F
4 1 Q 1 F
4 1 Q 3 F
5 1 Q 1 F
5 1 Q 3 F
6 1 Q 1 F
6 1 Q 3 F
7 1 Q 1 F
7 1 Q 3 F
8 1 Q 1 F
8 1 Q 3 F
9 1 Q 1 F
E 9 1 Q 3 F
E 0 2 Q 1 F
E 0 2 Q 3 F
$0.00
Source: Company Data; Wells Fargo Securities, LLC Estimates
Source: Company Data; Wells Fargo Securities, LLC Estimates
Micron DRAM Gross Margin (%) 75% 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% -10%
1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 E E E E E E 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 9 9 0 0 0 0 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 1 1 2 2 2 2 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 Q Q Q Q Q Q F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F 3 4 1 2 3 4 F F F F F F
Source: Company Data; Data; W ells Fargo Securities, LLC Estimates Estimates
Micron DRAM Capacity Capacity Shipped (Exabytes); B lended ASP ($/Gb) ($/Gb)
Micron DRAM Revenue ($B); Y/Y % Change $23 $22 $21 $20 $19 $18 $17 $16 $15 $14 $13 $12 $11 $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $0
180% 157%
Estimated Revenue ($B) Y/Y % Change
$21.232 160% 140% 120%
$15.154
100%
$12.963 80%
$12.074 $12.171 64%
$11.182 $10.339
60% 40%
$7.207 $4.349
80%
1%
-8%
20%
-29% F 20 20 13 13
F 20 20 14 14
F 20 20 15 15
F 20 20 16 16
F 20 20 17 17
Source: Company Data; Wells Fargo Securities, LLC Estimates
F 20 20 18 18
F 20 20 19 19 E
F 20 20 20 20 E
F 20 20 21 21 E
5.5
$5.43
5.6
$5.41 $5.16
-40%
0.0
4.0
P S
$4.00 A M
3.3
Est. F2018-F202 1E CAGR% Capacity Shipped: +13% Blended ASP ($/Gb): -26% 1.9
1.5
0.5
$4.50 3.9
$3.35
2.0
-20%
$5.00
$3.97
4.0
1.0
$6.00 $5.50
4.9
4.5 d e p p3.5 i h S s3.0 e t y b2.5 a x E
$6.50
Est. Blended ASP ($/Gb)
$5.79
5.0
0% -20% -30%
Est. Capacity Shipped (Exabytes)
6.0
2.0
$3.50 A
R D
$3.76
$3.00 d
$2.47 $2.17 2.2
$2.00 $1.50 $1.00
0.8
$0.50 $0.00
F 20 20 13 13
F 20 20 14 14
F 20 20 15 15
F 20 20 16 16
F 20 20 17 17
F 20 20 18 18
F 20 20 19 19 E
F 20 20 20 20 E
e d e l B
$2.50 n
F 20 20 21 21 E
Source: Company Data; Wells F argo Securities, LLC E Estimates stimates
Wells Fargo Securities, LLC | 5
Equity Research
Semiconductors & Semiconductor Cap Equipment
Trade NAND Flash Micron T rade NAND Flash Revenue ($B); Y/Y % Change $2.4
100%
24.0
$2.2
90%
22.0
$2.0
Revenue ($B)
80%
Y/Y % Change
70%
$1.8
Micron Tr ade NAND NAND Capacity Shipped (Exabytes); Ble nded ASP ($/Gb)
$1.70 $1.60
Est. Capacity Shipped (Exabytes)
$1.50
Est. Blended ASP ($/Gb)
20.0
$1.40 $1.30
18.0 60%
$1.6
50%
$1.4
40%
$1.2
30%
$1.0
20% 10%
$0.8
$1.20 16.0
$1.10 )
d e p14.0 p i h S s12.0 e t y b10.0 a x E
B
$1.00 G / $ (
$0.90 P S
$0.80 A D
$0.70 N A
$0.60 N
8.0
$0.50
0% $0.6
6.0
$0.40
4.0
$0.30
-10% $0.4
-20%
$0.2 $0.0
1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 E E E E E E 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 9 9 0 0 0 0 1 1 2 2 2 2 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 Q Q Q Q Q Q F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F 3 4 1 2 3 4 F F F F F F
$0.20
-30%
2.0
-40%
0.0
Source: Company Data; Wells Fargo Securities, LLC Estimates
$0.10 1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 E E E E E E 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 9 9 0 0 0 0 1 1 2 2 2 2 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 Q Q Q Q Q Q F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F 3 4 1 2 3 4 F F F F F F
$0.00
Source: Company Data; Wells Far go Securities, LLC Estimates
Micron Mi cron NAND Flash Flash Gross Margin (% ) 55% 50%
45% 40% 35% 30% 25% 20% 15% 10% 5%
0%
Source: Company Data; Data; Well s Fargo Securities, LLC Estimates
Micron Trade NAND Revenue ($B); Y/Y % Change $9
55%
51% Estimated Revenue ($B)
$8
$8.004
$7.843
Y/Y % Change
$7.197
45% $7.165
40%
$7
35%
$6.228
26%
27%
$6
30% 25%
$4.811
$5
50%
20% $4.045
19%
$4.138
12%
$4
15% 10%
$3.187
$3
5%
0% -8%
0%
$2
-5% Est. F2017-F2021 CAGR%: +6.5%
-10%
$1
-15%
-14%
$0 F 20 13 13
F 20 14 14
F 20 15 15
F 20 16 16
-20% F 20 17 17
Source: Company Data; Wells Fargo Securities, LLC Estimates
6 | Wells Fargo Securities, LLC
F 20 18 18
F 20 19 19 E
F 20 20 20 E
F 20 21 21 E
120.0 115.0 110.0 105.0 100.0 95.0 90.0 85.0 80.0 75.0 70.0 65.0 60.0 55.0 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0
Micron T rade NAND NAND Capacity Shipp ed (Exabytes); Blended ASP ($/Gb) Est. Capacity Shipped (Exabytes)
$0.527
$0.60 $0.55
Est. Blended ASP ($/Gb)
109.7 $0.50
Est. F2018-F202 1E CAGR% CAGR% Capacity Shipped: +44% Blended ASP ($/Gb): -30%
$0.408
$0.45 $0.40
80.9 $0.328
$0.35 $0.30
$0.262
60.1
$0.237
$0.25
$0.212
$0.20 37.1
$0.120
14.7 6.0
9.9
F 20 13 13
F 20 14 14
$0.15 $0.089
26.3
$0.073
15.8
$0.10 $0.05 $0.00
F 20 15 15
F 20 16 16
F 20 17 17
Source: Company Data; Data; W ells Fargo Securities, Securities, LLC Estimates
F 20 18 18
F 20 19 19 E
F 20 20 20 20 E
F 20 21 21 E
Equity Research
Micron Technology, Inc.
Micron Segment Results Summary:
Computer & Networking Business Unit (CBNU): (CBNU): Revenue of $2.38B -34% seq. and -35% y/y driven by weaker pricing across major segments as well as volume reductions in graphics, cloud, and PCs.
Mobile Business Unit (MBU): (MBU): Revenue of $1.61B -27% seq. and +3% y/y driven year over year by continued strength of low-power DRAM (LPDDR) and managed NAND products (Managed NAND bit shipments grew 5x y/y). Micron believes that 4K video, multiple cameras, 5G foldable phones, and AR / VR will drive sustained smartphone memory content growth in the future, in addition to reacceleration in smartphone units beginning C2020.
Embedded Business Unit (EBU): Revenue of $799M down 14% seq. and -4% y/y. Within this, Micron noted that the automobile business was down slightly, and other embedded reveue declined sequentially due to weaker pricing and lower DRAM volumes.
Storage Business Unit (SBU): Revenue of $1.02B down 11% sequentially and -19% y/y driven sequentially by lower SSD revenue, partially offset by increased component revenue. Computer & Networking Bu siness Unit (CNBU) - Revenue ($B)
Mobile Business Unit (MBU) - Revenue ($B)
Memory Products Sold Into Com pute, Networking, Graphics, Graphics, & Cloud Servers
Memory Products Sold into Sm artphones, Tables, & Mobile Devices $2.4 $2.3 $2.2 $2.1 $2.0 $1.9 $1.8 $1.7 $1.6 $1.5 $1.4 $1.3 $1.2 $1.1 $1.0 $0.9 $0.8 $0.7 $0.6 $0.5 $0.4 $0.3 $0.2 $0.1 $0.0
$4.6 $4.4 $4.2 $4.0 $3.8 $3.6 $3.4 $3.2 $3.0 $2.8 $2.6 $2.4 $2.2 $2.0 $1.8 $1.6 $1.4 $1.2 $1.0 $0.8 $0.6 $0.4 $0.2 $0.0
Source: Company Data; Wells Fargo Securities, LLC Estimates
Source: Company Data; Wells F argo Securities, LLC LLC Estimates
Embedded Business Unit (EBU) - Revenue ($B) ($B)
Storage Business Unit (SBU) - Reve Revenue nue ($B) ($B)
Memory Products Sold into Automotive, Industrial, Connected Home, & Consumer Electronics Markets
Memory & Storage Products Solid Into Enterprise, Cli ent, Cloud, & Removable Storage Markets; Markets; Includes Intel Joint Venture (IMFT)
$1.00 $0.95 $0.90 $0.85 $0.80 $0.75 $0.70 $0.65 $0.60 $0.55 $0.50 $0.45 $0.40 $0.35 $0.30 $0.25 $0.20 $0.15 $0.10 $0.05 $0.00
Source: Company Data; Wells F argo Securities, LLC E Estimates stimates
$1.5 $1.4 $1.3
$1.2 $1.1 $1.0 $0.9 $0.8
$0.7 $0.6 $0.5
$0.4 $0.3 $0.2 $0.1 $0.0
Source: Company Data; a; Wells Fargo Securities, LLC Estimates
Wells Fargo Securities, LLC | 7
Equity Research
Semiconductors & Semiconductor Cap Equipment
Micron Balance Sheet & Cash Flow Summary:
Cash Flow: Adjusted free cash flow of $988M in F2Q19 compared to $2.35B and $2.24B in the prior and year ago quarter, repectively. CFO was $3.435B in F2Q19 vs. $4.81B and $4.35B in F1Q19 and F2Q18, respectively.
CapEx: $2.686B gross capex in F2Q19 (net: $2.45) vs. $2.70B in F1Q19 (net: $2.46); depreciation and amortization of $1.34B in the quarter vs. $1.15B a year ago.
Net Cash: $2.99B exiting F2Q19 vs. $3.118B and -$0.641B in the prior and year ago period, respectively. Total debt at $6.238B exiting F2Q19 vs. $4.132B in the prior period and $9.316B a year ago .
Inventory: $4.39B vs. $3.88B in the prior period and $3.18B in the year ago quarter. We would estimate +80% of inventory as related to WIP + raw materials.
Cash Conversion Cycle: CCC of 77 days vs. 47 days and 27 in the prior and year ago periods, respectively. DSO of 77 days vs. 63 days in the prior period and 52 days in the year ago period. We estimate inventory days at 129 (company reporting 134) vs. 105 in the prior period and 95 in the year ago period. Accounts payable outstanding days at 129 days vs. 120 days in the prior period and 119 days in the year ago period. Micron Total Inventory ($B); Inventory Days
Micron Cash Conversion Cyc le (CCC; (CCC; Days) 100 90 80 70 60 50 40 30 20 10 0
1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F
Source: Company Data; Well s Fargo Securtiies, LLC LLC Estimates
$4.75 $4.50 $4.25 $4.00 $3.75 $3.50 $3.25 $3.00 $2.75 $2.50 $2.25 $2.00 $1.75 $1.50 $1.25 $1.00 $0.75 $0.50 $0.25 $0.00
$9.0 $7.5 $6.0 $4.5 $3.0 $1.5 $0.0 ($1.5) ($3.0) ($4.5)
1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F
Source: Company Company Data; Well s Fargo Securtiies, LLCEstimates
8 | Wells Fargo Securities, LLC
130 120 110 100 90 80 70 60 50 40 30 20 10 1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F
0
Source: Company Dat Data; a; Well s Fargo Securtiies, LLCEstimates
Trailing 12-Month Capex vs. Depreciation Expense ($B)
Trailing 12-Month Free Cash Flow ($B) $10.5
140
$10.5 $10.0 $9.5 $9.0 $8.5 $8.0 $7.5 $7.0 $6.5 $6.0 $5.5 $5.0 $4.5 $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.0
Depre De preci ciation a tion Ex Expe pense nse
Capex Ca pex
1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F
Source: Company Company Data; Wel ls Fargo Securtiies, Securtiies, LLCEstimates
9
M
icron Multiple-Driven Multiple-Driven Valuation Scenario: | W
#1: EV / EBIT Mu ltiples
F
s
ll
e rg e
5-y r . Hi sto r i c al NTM EV / EB IT :
u
c
S
o
a
W elel ls ls Fa Fa rg rg o EB EB IT Es Est . ($M M) M): - E BI BIT Margi n(%) Cu rrrr en en t EV / EB IT M ulul titi pl pl e - Curr Curren entt vs. 5-Yr 5-Yr.. Medi Median a n (%) (%)
C2017
C2018
$8, 95 951 38. 7% 7% 4.72x (42. (42.3% 3%))
$15, 97 973 50.7% 2.64x (67. (67.6%) 6 %)
$10,999 $10, 59 593 52. 2% 2% 51. 4% 4% 3. 84 84x 3. 99 99x (3.9 (3.9%) %) (0.2 (0.2%) %)
Mi n
Ma x
1 .9 7x 7x 2.03x
6 .2 3x 3x 6. 13x
- F or or wa wa rd rd 1 22- Mo Mo ntnt h E V/ V/ EB EB ITD A - N+ 1 Forward 12-Month E V /E B ITDA
4 .0 0x 0x 3. 3.87x
$48 $56 $64 $72 $81 $89
Implied Weighted Median:
$20, 97 977 66.6% 2.01x (49. (49.6%) 6 %)
2 8.8. 04 04 x 27.32x
EV / EB I T M u l t i p l e s: 5.5x 6.5x 7.5x 8.5x 9.5x 10.5x
Current Net Cash Position ($MM): Ca le nd nd ar ar Ye ar ar : - Est. Annual Increase in Net Cash - Est. CYE Net Net Debt Debt Position t ion
$13, 13 131 56. 7% 7% 3. 22 22x (19. (19.5% 5%))
2 .9 4x 4x 3.20x
$51,977 $51,977 $60,928 $60,928 $69,879 $78,830 $87,781 $87,781 $96,732 $96,732
Cu rrrr en en t M ar ar ke ke t V al al ue ue Cu rrrr en en t En te rp rpr isise V alal ue ue Current Shares Outstanding: - Est. Annual Dilution Pric e as of: 3/20/19
W el el ls ls Fa Fa rg rg o EB EB ITDA Es Est . ($M M) M): - E BI BITDA M arargin (%) Cu rrrr en en t EV / EB ITDA M ulul titi pl pl e - Curr Curren entt vs. 5-Yr. 5-Yr. Medi Median a n (%) (%)
8 .1 7x 7x 7.70x
EV / EB I T M u l t i p l e s: 5.5x 6.5x 7.5x 8.5x 9.5x 10.5x
C
C2019E
Me d i a n
$49,231 $49,231 $58,182 $58,182 $67,133 $76,084 $85,035 $85,035 $93,986 $93,986
L
C2018
5-y r . Hi st or i c al NTM EV / EB ITDA :
EV / EB I T M u l t i p l e s: 5.5x 6.5x 7.5x 8.5x 9.5x 10.5x
L
$5, 07 072 24. 6% 6% 8.33x 1.9% 1.9%
En te r p r i se V a l u e $87,852 $87,852 $103,825 $103,825 $119,798 $135,771 $151,744 $151,744 $167,717 $167,717
$30,406 4 06 $35,935 9 35 $41, $41,463 4 63 $46, $46,991 9 91 $52,520 5 20 $58,048 0 48
$27,895 $27,895 $32,967 $32,967 $38, $38,03 0388 $43, $43,11 1100 $48,182 $48,182 $53,254 $53,254
EV / EBI TDA M u l t i p l e s: 3.5x 4.0x 4.5x 5.0x 5.5x 6.0x
$24,974 $24,974 $30,046 $30,046 $35, $35,11 1188 $40, $40,19 1900 $45,261 $45,261 $50,333 $50,333
EV / EBI TDA M u l t i p l e s: 3.5x 4.0x 4.5x 5.0x 5.5x 6.0x
$24 $28 $33 $38 $43 $48
EV / EBI TDA M u l t i p l e s: 3.5x 4.0x 4.5x 5.0x 5.5x 6.0x
M a r k et Ca p i ta l i z a ti o n $85,414 $85,414 $101,387 $101,387 $117,360 $133,333 $149,306 $149,306 $165,279 $165,279
$33,521 5 21 $39,050 0 50 $44, $44,578 5 78 $50, $50,106 1 06 $55,635 6 35 $61,163 1 63
Implied Share Price $79 $93 $ 10 108 $ 12 123 $137 $152
$32 $37 $42 $48 $53 $58
$44, 98 988 V al al ua ua ti on on We We ig ig ti ng ng s (W el el l sF ar ar go go $42, 24 242 EV / EBIT EV / EBITDA 1,121.05 -3.0% P/E ex-Cash $40.13 EV / Sales
#3: P/E Mu ltip les
C2017
Ma x
,
s
$5,528 26. 2% 2% 7. 64 64x (6.5 (6.5%) %)
C2020E
Mi n
- F or or wa wa rd rd 1 22- Mo Mo ntnt h E V/ V/ EB EB IT - N+ 1 Forward 12-Month E V/ E B IT
e
C2019E
Me d i a n
ri ti
#2: EV / EBITDA Multip les
Es Es t. ) 35% 25% 35% 5%
C2020E
En te r p r i se V a l u e $45,959 $45,959 $73,420 $73,420 $52,524 $52,524 $83,908 $83,908 $59,090 $59,090 $94,397 $94,397 $65,655 $104,885 $72,221 $72,221 $115,37 $115,3744 $78,786 $78,786 $125,86 $125,8622 $48,705 $48,705 $70,982 $70,982 $55,270 $55,270 $81,470 $81,470 $61,836 $61,836 $91,959 $91,959 $68,401 $102,447 $74,967 $74,967 $112,93 $112,9366 $81,532 $81,532 $123,42 $123,4244
$38,497 4 97 $43,997 9 97 $49, $49,496 4 96 $54, $54,996 9 96 $60,495 4 95 $65,995 9 95
C2018
$7.00 n/a 5. 74 74x (25. (25.4% 4%))
$12. 48 48 78.3% 3.22x (58. (58.1%) 1 %)
$4. 44 44 (64.4% ) 9.04x 17.6 17.6% %
5-y r . Hi st o r i c al P/ E:
Me d i a n
Mi n
Ma x
5-y r . Hi st o r i c al NTM EV / S a l e s:
- F or or wa wa rd rd 1 2-2- Mo Mo ntnt h P /E /E e xx- Ca Ca sh sh
7 .6 8x 8x
3 5.5. 16 16 x
- F or or wa wa rd rd 1 2-2- Mo Mo ntnt h E V/ V/ Sa Sa le s - N+ 1 Forward 12-M onth E V /S al es
$37,075 $37,075 $42,371 $42,371 $47, $47,66 6688 $52, $52,96 9644 $58,260 $58,260 $63,557 $63,557
P / E e x -Net Ca sh 5.5x 7.0x 8.5x 10.0x 11.5x 13.0x
$34,154 $34,154 $39,451 $39,451 $44, $44,74 7477 $52, $52,96 9644 $55,340 $55,340 $60,636 $60,636
P / E e x -Net Ca sh 4.5x 5.5x 6.5x 7.5x 8.5x 9.5x
M a r k et Ca p i t a l i z a ti o n $41,612 6 12 $47,112 1 12 $52, $52,611 6 11 $58, $58,111 1 11 $63,610 6 10 $69,110 1 10
C2017 W el el ls ls Fa Fa rg rg o No No nn-GA AP AP EP EPS Es Est .: - Y /Y % Change Cu rrrr en en t P /E Mu ltlti pl pl e - Curr Curren entt vs. 5-Yr. 5-Yr. Medi Median a n (%) (%)
2017 $2,764 7 64 ($2,4 ($2,438 38))
ource: CompanyData; Wells Fargo Securities, LLC Estimates; FactSet
C2020E $4.11 (7. 4% 4%) 9. 76 76x 27.0 27.0% %
$65 $75 $85 $94 $104 $114
$39 $45 $50 $55 $60 $66
W el el ls ls Fa Fa rg rg o Sa Sa le le sEst. ($ ($M M) M): - Y /Y % Change Cu rrrr en en t EV / S alal es es Mu ltlti pl pl e - Curr Curren entt vs. vs. 5-Yr. 5-Yr. Medi Median a n (%) (%)
$43,141 1 41 $54,906 9 06 $66,672 $78,438 $90,203 2 03 $101,96 $101,9699
$69 $87 $106 $125 $143 $162 $76,925 $76,925 $97,905 $97,905 $118,884 $139,864 $160,84 $160,8433 $181,82 $181,8233
$32 $37 $42 $50 $52 $57
Medi an 1 .7 8x 8x 1. 74x
Mi n 1 .0 7x 7x 1 .00x
ro n
C2020E
e
T
y
g
lo
o
n
h
c
Ma x
, In
2 .5 9x 9x 2 .58x
c .
En t e r p r i se V a l u e
$25,349 3 49 $32,263 2 63 $39, $39,17 1766 $46, $46,09 0900 $53,003 0 03 $59,917 9 17
EV / S a l es Mu l ti p l e s: 1.2x 1.4x 1.6x 1.8x 2.0x 2.2x
$30,532 $30,532 $35,163 $35,163 $39,794 $44,425 $49,056 $49,056 $53,687 $53,687
EV / S a l es Mu l ti p l e s: 1.2x 1.4x 1.6x 1.8x 2.0x 2.2x
$28 $32 $37 $41 $45 $49
C2019E
$23, 15 155 $31,501 $21, 08 083 $20, 60 601 77. 9% 9% 36. 0% 0% (3 (33.1%) ( 2. 2. 3% 3%) 1.82x 1. 34 34x 2.00x 2. 05 05x 2.4% 2.4% (24. (24.8% 8%)) 12.4 12.4% % 15.0 15.0% %
$23 $29 $35 $41 $47 $53
$24 $31 $38 $44 $51 $58 $27,377 3 77 $34,844 8 44 $42, $42,310 3 10 $49, $49,777 7 77 $57,244 2 44 $64,710 7 10
C2018
EV / S a l es Mu l ti p l e s: 1.2x 1.4x 1.6x 1.8x 2.0x 2.2x
Implied Share Price $45 $51 $57 $63 $69 $75
C2017
Ma r k et Ca p i t a l i z a ti o n
$27,786 $27,786 $32,417 $32,417 $37,048 $41,679 $46,310 $46,310 $50,941 $50,941
$37,801 8 01 $44,101 1 01 $50,402 $56,702 $63,002 0 02 $69,302 3 02
$25,299 $25,299 $29,516 $29,516 $33,7 $33,732 32 $37,9 $37,949 49 $42,165 $42,165 $46,382 $46,382
$24,721 $24,721 $28,841 $28,841 $32,9 $32,961 61 $37,0 $37,081 81 $41,202 $41,202 $45,322 $45,322
M a r k et Ca p i ta l i z a t i o n $35,363 3 63 $41,663 6 63 $47,964 $54,264 $60,564 5 64 $66,864 8 64
$28,414 $28,414 $32,631 $32,631 $36,8 $36,847 47 $41,0 $41,064 64 $45,280 $45,280 $49,497 $49,497
$21,801 $21,801 $25,921 $25,921 $30,0 $30,041 41 $34,1 $34,161 61 $38,281 $38,281 $42,401 $42,401
Implied Share Price $33 $38 $44 $50 $56 $61
$27 $31 $35 $39 $43 $47
$21 $25 $28 $32 $36 $40
5-Year NTM P/E
5-Year NTM EV / EBITDA 6.5x
40.0x
6.0x
35.0x
5.5x
2020E ($6,949 ($6,9 49)) ($9,8 ($9,870 70))
C2019E
Pr i ce per Share
$42 $2,746 2018E 2019E $5,55 $5 ,5533 ($6,03 ($6 ,035) 5) $3,11 $3,1155 ($2,92 ($2,920) 0)
3 .3 6x 6x
$38 $49 $59 $70 $80 $91
ic
#4: EV / Sales Mu ltiples
30.0x +1Sta ndard Deviation
5.0x
25.0x
4.5x
Note: This scenario analysis valuation is not the basis for our price target; highlighted = implied median
20.0x Median:4.0x
4.0x
+1Sta ndard Deviation
15.0x 3.5x 10.0x 3.0x
Median:7.7x
-1Standard Deviation
2.5x
2.0x
5.0x -1Standard Deviation i on 0.0x
q
E
Source:FactSet; WellsFargoSecurities, LLC
y
it
u
Source:FactSet; WellsFargoSecurities, LLC
h
rc
a
e
s
e
R
Semiconductors & Semiconductor Cap Equipment
Equity Research
Price Target Price Target: $50 from NC Using a weighted valuation methodology based on our C2020 estimates as well as a 11.3x P/E and 5.0x EV/EBITDA, we arrive at a price target of $50/share. Risks include highly volatile pricing for DRAM and NAND flash, the need for relatively high levels of capital investment, and large swings in Micron's profitability that have occurred in the past and which we think are likely to continue in the future.
Investment Thesis Our positive thesis on Micron reflects 1) the expectation of a rational DRAM and NAND supply/demand environment 2) Stronger than appreciated demand-side considerations driven by next-generation technologies 3) Micron's improved competitive positioning in the DRAM and NAND markets and 4) Micron's continually improving component-to-solutions mix.
Company Description Headquartered in Boise, Idaho, Micron Technology designs and produces DRAM NAND and NOR flash memory used in computers, computers, wireless handsets, consumer electronics and and other electronic equipment.
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Micron Technology, Inc.
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Additional Information Available Upon Request I certify that: 1) All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or issuers discussed; and 2) No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations recommendations or views expressed by me in this research report.
Wells Fargo Securities, LLC and/or its affiliates, have beneficial ownership ownership of 0.5% or more of any class of the common stock of Micron Technology, Inc.. Micron Technology, Inc. currently is, or during the 12 month period preceding the date of distribution of the research report was, a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided investment banking services to Micron Technology,
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Inc.. Wells Fargo Securities, LLC or its affiliates received compensation for investment banking services from Micron Technology, Inc. in the past 12 months. Wells Fargo Securities, LLC, or any of its affiliates, intends to seek or expects to receive compensation for investment banking services from Micron Technology, Inc. in the next three months. Wells Fargo Securities, LLC, or its affiliates, managed or co-managed a public offering of securities for Micron Technology, Inc. within the past 12 months. Wells Fargo Securities, LLC maintains a market in the common stock of Micron Technology, Technology, Inc.. Wells Fargo Securities, LLC or its affiliates has a significant financial interest in Micron Technology, Inc..
MU: Risks include highly volatile pricing for DRAM and NAND flash, the need for relatively high levels of capital investment, and large swings in Micron's profitability that have occurred in the past and which we think are likely to continue in the future. Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions. Wells Fargo Securities, LLC’s LLC’s research analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm, which includes, but is not limited to investment banking revenue. STOCK RATING 1=Outperform: The 1=Outperform: The stock appears attractively valued, and we believe the stock's total return will exceed that of the market over the next 12 months. BUY 2=Market Perform: The Perform: The stock appears appropriately valued, and we believe the stock's total return will be in line with the market over the next 12 months. HOLD 3=Underperform: The stock appears overvalued, and we believe the stock's total return will be below the market over the next 12 months. SELL SECTOR RATING O=Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. M=Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. U=Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months. VOLATILITY RATING V = A stock is defined as volatile if the stock price has fluctuated by +/-20% or greater in at least 8 of the past 24 months or if the analyst expects significant volatility. All IPO stocks are automatically rated volatile within the first 24 months of trading. As of: March 20, 2019 48% of companies covered by Wells Fargo Securities, LLC Equity Research are rated O utperform. utperform.
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