Buy Micron (MU) on SanDisk Related 'Confusion' - Summit Research

Summit Research analyst Srini Sundararajan is the latest to defend Micron Technology (NASDAQ: MU) amid yesterday's sell-off on issues at rival SanDisk (NASDAQ: SNDK). Sundararajan is recommending buying the shares on weakness, citing:

10. SNDK is a NAND pure-play, while MU is mostly a DRAM Play; DRAM is more important for MU: MU gets ~68% of its revenues from DRAM and 27% of its revenue from NAND.

In DRAM (1Q14), Micron had about 26.9% market share vs. Samsung's 37.2%, and SK Hynix's 27.8% in 1Q14. So MU's position in DRAM flirts between #2 and #3.

In NAND flash (1Q14), Samsung had 30.0% share, Toshiba 21.4%, Sandisk 18.9%, Micron 14.5%, SK Hynix 8.2%, and Intel 7%.

9. DRAM more profitable for MU: Recently, the DRAM solutions group of MU had an op. margin of 27.5% whereas its NAND solutions group had an op. margin of 20.3%.

8. SNDK's customer qualification-related capacity restraint is good news for NAND across the board: We believe that SNDK is being restricted to 60% 1Ynm/40% 19nm output due likely to possible terms of an Apple contract necessitating 19nm node output for its devices. By not moving to 1Ynm and increasing the number of bits, there is a lesser number of NAND bits in the market. And a chunk of SNDK's production is being eaten away by Apple means that there are overall less bits to go around. Not only that, SNDK is restricted from making progress to high vol. manufacturing to 1Znm node for longer. MU can potentially capture market share while SNDK is restricted due to its relationship with AAPL.

7. Micron is transferring to 16nm node from 20nm node: While SNDK is being restricted.

6. Micron and SK Hynix are relative novices on NAND compared to mature craftsmen like SanDisk, Toshiba, Samsung and even Apple: When it comes to the art of monetizing and exploiting NAND, MU and SK Hynix are just getting started. In fact, SK Hynix (every node) and MU (high-K, metal gate implementation during 25nm to 20nm transition) have not had it that easy in the NAND market. When it comes to using Triple-Level-Cell NAND implementation with controllers, Micron is likely to implement it during 1Q15 and SK Hynix expects to do so in 2H15. MU's NAND margins are set to improve during the next six quarters.

5. Micron has big brother Intel helping with process development on both 2D Planar NAND as well as 3D NAND: Intel is the maestro and MU has a NAND J.V. with INTC.

4. DRAM pricing, though below what it was pre-SK Hynix Wuxi fab production re-entry, keeps going up up (high single digits) nevertheless: After the capacity constraint due to SK Hynix fire damage of its Wuxi fab was lifted, DRAM ASPs fell, but now are steadily climbing back up.

3. Many types of DRAM exist, and mobile-DRAM is manufactured on a contract basis only; capacity constraints meeting increasing demand for all types of DRAM: Essentially, whether it is PC or mobile DRAM, the situation is favorable. The PC market is recovering, and in mobile DRAM, capacity problems forced Samsung to restrict itself to 2GB in Galaxy S5 and even procure DRAM from competitors such as Micron and SK Hynix. Finally, more DRAM purchases are becoming contract purchases over longer time periods.

2. If you have lasted this far, we need not tell you more, but we will - DRAM manufacturing oligopoly has fewer members in its rolls: Micron, SK Hynix, Samsung. while NAND has four (six incl. JVs.).

1. And, DRUM Roll Please, The #1 Reason: You do not want to appear to be a person that does not understand that DRAM and NAND memory are not the same.

The firm maintained a Buy rating price target of $46.00

For an analyst ratings summary and ratings history on Micron Technology click here. For more ratings news on Micron Technology click here.

Shares of Micron Technology closed at $33.05 yesterday.

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