Wednesday, March 9, 2011

Micron (MU), SanDisk (SNDK) Recommended on DRAM, NAND Changes

Sterne Agee chip analyst Vijay Rakesh today maintained a "Buy" rating and a $17 price target on shares of Micron Technology (NASDAQ:MU), and a "Buy" rating and a $65 price target on shares of SanDisk (NASDAQ:SNDK), saying that “structural changes” are coming to the DRAM chip market and the NAND flash chip market.

On the DRAM side, Micron’s Taiwanese competitors lack the proper immersion technology to shrink DRAM chips, they have “significantly higher cash and fully loaded costs,” and there simply are fewer viable DRAM suppliers, which is prompting PC OEMs to go easy on their pricing demands.

Rakesh’s point is that with so few DRAM makers in the business these days, PC OEMs are not going to try to drive a hard line on price, because they don’t want to drive anyone out of business, thus creating shortages and driving prices back up.

On the NAND flash side, it’s all about Apple’s (NASDAQ:AAPL) iPad 2, and competing tablets, which have “irreversibly” changed the NAND industry.

Rakesh said, "The tablet market is an entirely new market for NAND, and with the iPad 2, appears to have gotten a second coming, a resurrection of sorts. [T]here were doubts about what another iPad would do, [but] the launch of the iPad2 laid to rest doubts of it being another Blockbuster. The overarching view in Taiwan is that iPad2 is a runaway winner in 2011. While all competing tablets have been pricing at $700-900, the iPad2 pricing at $499 has been a stunner, leaving the competition with no answer. But we believe the view here is, it is short term, where the other PC- handset OEMs will figure out a Tablet Pricing+Android app strategy and come back into the market. Structurally the Tablet segment is here to stay and will only grow in strength."

Micron closed Tuesday at $10.89, down $0.14, or 1.27 percent. SanDisk closed at $46.91, up $0.03, or 0.06 percent.




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