Pierre Ferragu of New Street Research this morning offers up some findings on Tesla (TSLA) from having recently toured its Fremont, California manufacturing facility, a tour that left him delighted with what he observed about the company’s production capabilities and its competitive advantages in thinge such as batteries.
Of the infamous production delays of the Model 3, Ferragu describes observing up close that “We could see live what held back the production ramp of the Model 3, as well as what has been or what is being done to remove them. Reality is that it is all very mundane.”
The mundane things are steps to align battery cells to glue them together, which is something robots were supposed to do but proved bad at, so they had to be replaced for the time being by people, Ferragu relates.
His conclusion is that such issues “are not deal-breakers and get eventually fixed one after the other, and every time it happens, the cadence of production increases.”
He also sings the praises of some key technologies. The inverter in the Model 3, for example: “We wrote that the Model 3 inverter is a third of the size of the Model S inverter…we were mistaken. We saw it first-hand during our tour, it is less than a fifth. The level of integration is unbelievable.”
Meantime, in other Tesla news, CNBC’s Lora Kolodny related on Saturday that Chief Executive Elon Musk sent an email to employees on Friday stating that “’radical improvements’ are still needed in manufacturing to hit the company’s quarterly targets,” referring to Musk’s projection that Tesla will make 5,000 Model 3 sedans per week by the end of the this month.
Tesla shares today are down $2.30 to $355.87 in early trading.
Micron Earnings on Tap
The Street is preparing for Micron Technology’s (MU) earnings report on Wednesday, after the closing bell. The Street is, on average, modeling revenue of $7.75 billion and earnings of $2.95 per share, after Micron pre-announced results back on May 21.
David Wong of Wells Fargo writes, “We expect that in the coming week Micron’s May earnings report and August guidance will reflect continuing strength in DRAM prices. “
Cowan & Co.’s Karl Ackerman, who maintains an Outperform rating on the shares, and a $67 price target, writes that “the bar is set high for MU’s print,” but he thinks there may be “some slight upside on DRAM ASPs and our field work suggests a benign S/D [supply/demand] outlook in DRAM that argues at least a dime of upside for AugQ.”
Ackerman notes he’s obsessed some signs of “elevated inventory for mobile NAND and server DRAM, but not materially so,” and he expects trends in server computers and smartphones will “soak up supply” in the latter half of this year.
Over the weekend, the stock also got a price target increase by Evercore ISI’s CJ Muse, from $80 to $100, as he concluded the report will be a “solid beat and raise,” with the outlook for earnings for August likely around $3.35 per share versus current consensus for $3.15.
While a decline in DRAM chip prices are a hurdle for Micron, “Further digestion of Samsung push-outs coupled with pickup in seasonal demand should be positive for shares into and through the Summer,” he concludes.
Micron shares are down 32 cents to $57.91.
Memory Chips Threaten Semi-Cap Names
Speaking of memory chips, shares of Applied Materials (AMAT) and Lam Research (LRCX) are both down slightly this morning after Stifel Nicolaus’s Patrick Ho this morning warned that “push-outs,” a fancy word for delays, in spending on new equipment to make such chips threaten revenue for the two this year—he’s cut his estimate for total equipment industry sales by $1.8 billion to $50.2 billion this year.
The delays in spending are mostly “attributable to Samsung, and primarily on the 3D NAND front,” he writes.
“We estimate that 30k wafer starts per month (wspm) of capacity (we suspect for its Xian fab in China) has been pushed out from mid-year/Sept quarter to sometime in 1H19.”
“While we do not have the exact reasoning for the push outs, we suspect some of it could be attributable to yield challenges as Samsung has been doing development and pilot work on its next generation 96 layer device.”
Despite cutting estimates for both equipment makers, Ho is upbeat, arguing that spending industry-wide is still “elevated” in general.
An Apple Streaming Service in 2019?
Apple (AAPL) will probably introduce a streaming video offering by late next year, opines Daniel Ives of the boutique GBH Insights in a research note today.
Citing last week’s announcement of a content development deal between Apple and Oprah Winfrey, Ives opines it is “the tip of the spear” for the company, and “speaks to Apple and Cook’s serious focus on adding content to its distribution over the next 12 to 18 months.”
The closure of AT&T’s (T) purchase of Time Warner , and Comcast’s (CMCSA) bid for assets of 21st Century Fox (FOXA), mean that “now is the time” for Apple to have a “standalone” subscription-based streaming service, he believes
Ives thinks Apple could go from $1 billion spent today on content to “$3 billion to $4 billion next year, which is still well below that of Amazon (AMAT) (~$6 billion annually) and Netflix (NFLX) (likely ~around $10 billion next year) in this steaming content arms race.”
Apple shares today are down $1.28 to $187.56.
5G Will Be a Chip Boon
KeyBanc’s John Vinh returns from a recent conference on wireless chips with upbeat thoughts about the 5G wireless market. Basically, the complexity of 5G radio technology inside smartphones means that the average selling price of chips for the phones should go from $25 to $32 to $50 per phone, he writes.
Key technologies for 5G, writes Vinh, are something called “mmW bands” for handsets, and something called “massive MIMO,” antenna arrays.
“With Massive MIMO antennas expected to have a significant number of elements (16 to up to 1,000 in some cases), we see a significant content growth opportunity for IDTI and XLNX.”
Investors Warm to Zscaler
Shares of recently public cloud computing outfit Zscaler (ZS) are down 80 cents to $40.20 despite an upbeat note this morning from Credit Suisse’s Brad Zelnick, who reiterates his Outperform rating and $38 price target on the shares, after meeting with the company’s CEO and CFO. Zelnick opines investors are starting to “get” Zscaler’s “transformative message” about security technology.
Moreover, “We continue to believe management is prudent stewards of investor capital, and are managing the business for the long-term,” he writes.
“An example is avoiding discounting on upfront payment of multi-year contracts.”
“Additionally, the inherent leverage in the model is well underlined by ZS’s ability to achieve positive free cash flow at current revenue scale.”
Sign up to Review & Preview, a new daily email from Barron’s. Every evening we’ll review the news that moved markets during the day and look ahead to what it means for your portfolio in the morning.