- Morgan Stanley retains an ‘Underweight’ rating with a target of ₹8,157 – a 24% discount to current levels.
- DRAM spot prices are up 6.8x YoY, pushing mobile memory costs 55‑64% Q/Q.
- ~75% of India’s smartphones sell below $300, making them ultra‑sensitive to component‑price spikes.
- CLSA cut its price target by 23% and downgraded to ‘Hold’, citing a memory super‑cycle.
- If DRAM inflation persists, earnings margins for contract manufacturers like Dixon could compress sharply.
You ignored the DRAM surge – now Dixon’s share price is paying the price.
Why Morgan Stanley’s Underweight Stance Matters for Dixon Technologies
Morgan Stanley’s decision to keep Dixon Technologies (NSE: DIXON) underweight signals a conviction that near‑term earnings will be squeezed. The brokerage’s price target of ₹8,157 is roughly 24% below the current trading level of ₹10,645, implying that the analyst expects a material correction unless a catalyst reverses the cost‑pressure narrative.
The firm’s caution is anchored in two macro‑level observations: first, an unprecedented surge in DRAM prices; second, the price‑sensitivity of the Indian smartphone market. By quantifying the headwind – a potential 5‑7% margin erosion on a typical BOM (Bill‑of‑Materials) for sub‑$300 devices – the analyst paints a picture where operating income could dip by double‑digit percentages if cost‑pass‑through mechanisms fail.
DRAM Price Explosion: Numbers, Drivers, and Timeline
As of 13 Feb 2026, DRAM spot prices are 6.8 times higher than a year ago. In the first quarter of calendar‑year 2026, LPDDR4 prices rose 55% QoQ, while LPDDR5 climbed 64% QoQ. TrendForce projects an additional 88‑93% increase in Q1 CY26 and a further 20‑25% in Q2 CY26. These spikes are driven by three forces:
- AI‑led demand: Data‑center and edge‑AI workloads require high‑bandwidth memory, pushing manufacturers to accelerate DDR5 and HBM production.
- Supply constraints: Foundries are still re‑tooling from legacy DRAM nodes, and geopolitical bottlenecks limit wafer shipments.
- Inventory burn‑rate: Smartphone OEMs have been de‑stocking memory chips, creating a temporary shortage that inflates spot prices.
For contract manufacturers like Dixon, which assemble a large share of low‑cost Android phones, the cost‑pass‑through window is narrow. Consumers in the sub‑$300 tier are price‑elastic; any retail price hike risks demand contraction.
Sector Ripple Effects: How Peers Are Reacting
Kaynes Technology and PG Electroplast also slipped on the same trading day, indicating that the market is pricing in a broader component‑inflation narrative. Kaynes, a key PCB and assembly player, reported a 1.1% decline, while PG Electroplast – a plastic‑housing supplier – fell 1.6%.
On the upside, firms with stronger exposure to higher‑margin premium smartphones (e.g., those serving Apple or Samsung’s flagship lines) are less exposed. Their BOM share of DRAM is proportionally lower, and they possess pricing power to offset cost spikes. Investors therefore re‑evaluate exposure across the Indian electronics contract manufacturing ecosystem, favoring companies with diversified client bases and higher‑value product mixes.
Historical Parallel: Memory Cycles and Stock Reactions
Memory super‑cycles are not new. The 2017‑2018 DRAM rally, driven by a data‑center boom, saw Indian OEM assemblers’ margins compress by 3‑4% and stock prices dip 12% on average. Those that diversified into premium segments recovered faster, while pure‑play low‑cost assemblers lagged for 9‑12 months. A similar pattern unfolded in 2020 when NAND flash prices surged; companies with integrated design capabilities (e.g., Samsung, Micron) weathered the storm better than pure assemblers.
The current environment mirrors those cycles, but the AI‑driven demand for high‑bandwidth memory adds a new layer of volatility. The key differentiator now is how quickly Indian manufacturers can secure long‑term supply contracts or shift production toward higher‑margin devices.
Fundamental Metrics Under Pressure
Let’s break down the numbers that matter:
- Gross margin: Historically 15‑18% for Dixon. A 5‑7% DRAM‑cost increase could shave ~2‑3 percentage points.
- EBITDA margin: Currently ~9%. Margin compression could push it below 6%, triggering covenant breaches on existing debt facilities.
- Revenue growth: FY‑25 saw a 12% YoY rise, mainly from volume expansion in the $200‑$300 segment. If price elasticity deepens, growth could stall or reverse.
These fundamentals underscore why Morgan Stanley’s underweight call is more than a headline – it reflects a bottom‑up risk assessment.
Investor Playbook: Bull vs. Bear Cases
Bull Case: If Dixon secures long‑term DRAM supply at pre‑spike pricing or successfully pivots to higher‑margin premium devices, margins could stabilize. A turnaround in smartphone demand (e.g., rollout of 5G‑enabled budget phones) would also lift volumes. In this scenario, the stock could rally back to ₹12,000‑₹13,000, offering a 15‑20% upside from today.
Bear Case: Prolonged DRAM inflation combined with stagnant demand in the sub‑$300 segment could erode margins to sub‑5% EBITDA, forcing the company to raise prices and lose market share. A breach of debt covenants could trigger a credit downgrade, pushing the share below the Morgan Stanley target of ₹8,157 – a potential 30% downside.
Strategic investors should monitor three leading indicators:
- DRAM spot price trajectory – a slowdown or price correction would ease the cost pressure.
- OEM order book composition – a shift toward premium brands reduces exposure.
- Debt covenant compliance – any breach would accelerate a sell‑off.
Until one of these variables turns favorable, the prudent stance aligns with Morgan Stanley’s underweight rating.