ASML - DRAM prices to rise
Janardan Menon, Liberum's Technology Analyst, discusses his latest report on ASML. We forecast DRAM capex and ASML’s revenuesto accelerate from 2020. We also expect logic demand tostrong and for ASML’s gross margins to steadily rise to the 50-55% range in the coming years. We therefore believe that current market conditions present an opportunemoment to BUY, and raise our TP from €215 to €254.
Click here to read the report. Transcript.
"We think price elasticity of DRAM is probably the biggest factor in the overall DRAM demand supply equation so in 2017 when prices went up by almost 100%. The price of DRAM as a as a proportion of the cost of say a pc went up to the high end of the range which is typically close to 10 percent but now having fallen by almost 60% on the contract price over the last three to four quarters. The price of DRAM is a percentage of the cost of a device like a PC has now become very much the low end of its range which is a 4% in fact right now it's at about three and a half percent now that's very exciting for us because that's when typically PC vendors and smartphone vendors will find it cheap enough to start increasing the content of DRAM in their devices they will also start giving promotional offers like you know double your DRAM for free or the same price and things like that some of which we think are already beginning to happen and this is very much what is required this kind of content growth is very much what is required to get us to this 20 percent or thereabouts a bit demand growth for the overall DRAM industry where we think that number has been well below that level in the last say six quarters or so which is what has led to this oversupply and the fall of DRAM prices the other thing of course is weeping we believe server demand is now picking up into the third quarter which also is a powerful driver of that DRAM bit demand growth rate both of which together we think should be comfortably taking us towards that 20% at the same time because the DRAM suppliers like Samsung, Micron and Hynix have been cutting their capex this bit supply growth rates coming down to 15% or even lower which means that increasingly we are going to be in a supply constraint environment especially as the inventories start getting worked through and that means that we will expect prices to start rising from here typically contract prices will follow spot by about four months or so on the way up so we think by q4 or there abouts we should be seeing an increase In contract pricing which means that you know that'll have an impact on capex as well"
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