Here’s Why Micron Technology, Inc. (MU) Stock Is Trading Up 9.1%
Following the release of an amended supply agreement with Inotera, Micron Technology stock is trading up by around 9.1% today
Published: Feb 10, 2015 at 3:24 pm EST
Micron Technology, Inc. (NASDAQ:MU) is trading up by around 9.1% as of 3:02 PM EST today. The rally in the stock price today comes as a result of the release of an 8-K filing with the Securities & Exchange Commission (SEC) which revealed an amended supply agreement with Taiwanese DRAM manufacturer, Inotera.
The company announced that it was amending the standing agreement with Inotera, which was originally signed in January 2013. The amended supply agreement will expire on December 31, 2015, after which a new supply agreement between the two companies would be made effective from January 2016.
As a part of the amended supply agreement, Inotera will be supplying Micron with DRAM components at a discount to the market prices. The prices of the components will be determined through the manner outlined in the January 2013 supply agreement.
The January 2016 supply agreement would price the Dynamic Random Access Memory (DRAM) products in a manner where both Micron and Inotera would get an equal share of the margins. The company said in the 8-K form that the formula used to determine the margin sharing between the two companies “takes into account each party’s costs of manufacture as well as Micron’s consolidated operating expense ratio and Micron’s worldwide revenue per wafer on a per-node basis.”
In response to the filing, JP Morgan analyst, Harlan Sur, said that the new supply agreement is a beneficial one for Micron. Mr. Sur said that in the event that Average Selling Price (ASP) of the DRAM products remains stable, the company could be looking at around $160-190 million in savings from 2016 onwards. JP Morgan holds an Overweight rating on the stock, with a price target of $40.
Out of the 35 analysts polled by Bloomberg, 28 rate the stock a Buy, and six rate the stock a Hold. The consensus 12-month target price on the stock is $42.27.
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