Micron, Hynix: Susquehanna Upgrades Both Following DRAM Fire
Following reports last week of a fire at the DRAM plant of South Korean manufacturer SK Hynix (000660KS), and a spate of endorsements of competitor Micron Technology (MU), Susquehanna Financial Group's Mehdi Hosseini took the unusual step of upgrading the stocks of both companies, raising his rating on Hynix to “Positive” from Neutral, and raising Micron to Neutral from “Negative.”
As far as Hynix, Hosseini thinks the possibility of a cut in production is already factored into the price of the shares at a recent ₩28,450, and he sees upside to ₩36,500, higher than his prior target of ₩32,000:
The fire at Hynix's Wuxi, China, fab is expected to help improve the DRAM fundamentals into 1H14. Following our Taiwan trip a few weeks ago, we argued the above avg OEM/channel inventories, combined with disappointing PC sell-through in 2H13 to lead to 5-10% per quarter DRAM ASP decline in 2H13. However, the Wuxi fire is expected to reduce OEM/ channel inventories by 2-3 weeks, and thus cause OEM/Channel inventories to decline to below 6 weeks by YE13. This is expected to help with: (1) better than seasonal trends in 1H14, and (2) better overall blended ASP in CY14. Thus, although we are reducing our 2H13 est for Hynix to account for lower DRAM shipment, our CY14 est have increased [...] The fire started in the Wuxi DRAM fab on the afternoon of Sep-4, lasting 90 min. We estimate this fab to have had a capacity of 135k wpm, with a 50/50 mix of 35/29nm process tech. Our checks indicate the fire started in the basement, though the second floor (of this four-story building) was impacted as the smoke reached and filled this floor through the ventilation system. According to an update by Hynix on Sep-8, some operation has already started in the areas that were not impacted by the fire nor the smoke.• We estimate 3Q13 rev impact of W225B, or 6% lower: (1) Wuxi fab accounts for 50% of Hynix DRAM production, (2) Hynix will in the near term rely on the 2-3 weeks of DRAM inventory to sh
But what does this have to do with Formfactor? I agree this fire is great news for Micron. But I would argue it is bad news for formfactor. Why? Because Micron can now make a lot of money cranking out existing product- therefore no need to change products, hence, no need to buy new probecards from FORM.
"The fire at Hynix's Wuxi, China, fab is expected to help improve the DRAM fundamentals into 1H14"
DRAM fundamentals are historically weakest during Q4 and Q1. If this helps improve DRAM fundamentals into 1H14 how can you not see this as positive for FF when it still derives more than 40% of its revenue from DRAM?
Add the fact FF is working on new product to address the NAND segments which will be available 1Q14 then you have continuous improvement in company's fundamentals.
Some people choose to look at everything with negative glasses.