Strengthening NAND pricing also benefits Micron Technology.
Courtesy of Micron
Western Digital shares are trading higher on signs of improving pricing in the flash-memory market.
Susquehanna International Group analyst Mehdi Hosseini on Wednesday repeated his Positive rating on Western Digital (ticker: WDC), lifting his price target to a Street-high $100 from $85. The analyst’s bullish call on Western shares reflects his broader view that memory-chip pricing is rising for both flash NAND and DRAM.
Once primarily a disk-drive manufacturer, Western diversified into flash-memory products via its 2016 acquisition of SanDisk. Strengthening NAND pricing also benefits Micron Technology (MU), which makes both NAND and DRAM chips.
“The most important takeaway from our recent checks is that despite increased attempts by cloud and enterprise customers to lock in prices for second half delivery, manufacturers are not flinching as they now expect significant [price] increases from now till then, reflecting the pricing power that is beginning to shift from the buyer to manufacturer,” Hosseini writes in a research note. “This should lead to meaningful expansion in margins, which have been under pressure since 2018.”
Hosseini reports that first-quarter DRAM prices are tracking up 5% to 10% from the fourth quarter—and that pricing for the second quarter is tracking up another 10% or more sequentially. He adds that NAND pricing is tracking flat to down low single digits for the first quarter, better than Street expectations for a 5% price drop in the quarter. And he says NAND pricing should be up 5% or more in the second quarter.
“It appears memory margins bottomed in the [2020 fourth quarter], with significant room for expansion in 2021 (and beyond) given the industry nature of high fixed cost structures,” Hosseini writes. “All in all, we remain bullish on memory manufacturers like Micron, Samsung and Western Digital given the pricing power that is now coming back.”
In recent trading, Western Digital shares are up 3.4%, at $69.43, while Micron is up 2.4%, at $90.31. The S&P 500 is up 0.6%. Year to date, Western Digital is up 25% and Micron is up 19%.
Write to Eric J. Savitz at [email protected]
