Micron (MU) reported strong fiscal fourth-quarter results, driven by favorable industry fundamentals. Management foresees the positive environment to persist into 2018, echoing sentiments of peers and equipment providers alike. While favorable DRAM average selling prices stemming from tight supply bolstered the firm’s results, we reiterate our positive thesis on Micron’s 3D NAND offerings codeveloped with Intel. Micron is ramping its second-generation 3D NAND offerings (64-layer), which will account for over half of total 3D NAND output by the second half of fiscal 2018. This should enable the firm to take part in more appealing end-markets such as solid-state drives tailored to hyperscale cloud vendors while enjoying superior cost metrics. However, we don’t expect the current supply-demand imbalance to last beyond 2018, and thus maintain our $28 fair value estimate. Consequently, we recommend prospective investors wait for a more attractive entry point, as shares of this no-moat memory supplier have already risen 95% over the past 12 months.

Fourth-quarter revenue grew to $6.138 billion, up 10% sequentially, led by a 14% gain in server DRAM sales and record quarterly revenue from the embedded business unit (which features automotive, consumer, and industrial end-markets). DRAM sales rose 14% over the prior quarter to $4.05 billion, with the aforementioned server gains partially offset by declines in mobile DRAM. We note SSD revenue fell 15% sequentially, due to a shipment pause caused by an issue on select 3D NAND drives. Per management, this issue has been resolved and sequential SSD growth should resume next quarter. Gross margins rose to 50.7% from 46.9% last quarter, as Micron enjoyed strong bit growth and ASP increases in DRAM, partially offset by a cost per bit increase in NAND.

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