It is expected to shed light on how two years of unprecedented supply problems can be solved

by Wallace Witkowski

Even as demand subsides, supply issues remain the ‘most pressing concern’ for purchasing managers, notes Morgan Stanley analyst

Micron Technology Inc. Investors are hoping the memory-chip maker’s forecast will provide more color in the unprecedented supply-and-demand dynamics created by two years of COVID-19-related disruption.

Micron (MU) is due to report its fiscal fourth-quarter results after the market closes on Thursday.

If there was any question last quarter whether the two-year global chip shortage was over, Micron’s fourth-quarter sales forecast that fell short of Wall Street’s consensus at the time fell by $1.5 billion.

Micron’s chief executive Sanjay Mehrotra said in late June that the company was taking action to curtail supply growth due to the recent weakening in industry demand. Now that we know that parts of the chip industry have begun to pocket more supply, the question naturally becomes: How long does it take for the cycle to return?

The problem is that the supply-chain issues created by the COVID-19 pandemic were unprecedented, more or less throwing off the playbook for predicting chip cycles.

The Boise, Idaho-based chip manufacturer specializes in DRAM and NAND memory chips. DRAM, or Dynamic Random Access Memory, is the type of memory commonly used in PCs and servers, while NAND chips are flash memory chips used in smaller devices such as smartphones and USB drives.

For most of the year, analysts have been fretting over the chip sector. Record-high stock prices before the end of 2022, record sales through 2023 and unsold supply hit many investors who may remember the 2019 chip glut as red flags.

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Morgan Stanley analyst Joseph Moore, who has less weight on Micron, said the supply disruption triggered by the COVID-19 pandemic is “more impactful than what we’ve seen historically.”

“As we speak to purchasing managers, the number of ‘golden screw’ parts in short supply is declining – but there are still enough issues that in most end markets, widespread concern about supply issues is of most concern.” is,” said Moore.

“There are also issues of demand, mostly tough comparisons across work-from-home consumer markets, including some consumer electronics markets, PC gaming and to a lesser extent console gaming,” Moore said.

what to expect

Earnings: Of the 29 analysts surveyed by FactSet, Micron is expected to post an average adjusted earnings of $1.41 per share, down from the $2.82 per share expected at the start of the quarter. Micron had forecast fourth-quarter net income of $1.43 to $1.83 per share. Estimate, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, is seeking earnings of $1.54 per share.

Revenue: Wall Street expects $6.81 billion in revenue from Micron, according to 28 analysts surveyed by FactSet. This is lower than the $9.56 billion forecast at the beginning of the quarter. Micron forecast revenue of $6.8 billion to $7.6 billion. Estimated revenue of $7.04 billion is expected.

Analysts expect an average of $5.1 billion in DRAM sales and $1.88 billion in NAND sales, according to FactSet.

Stock movement: In Micron’s August-ending quarter, the stock is down 23%, while the PHLX Semiconductor index is down 14% over the same period, the S&P 500 index is down 4%, and the tech-heavy The Nasdaq Composite Index declined. 2%.

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Micron has met or exceeded analysts’ expectations every quarter since December 2018, when sales were down about 1% from the Street consensus. In the 14 quarters since, the stock’s movement has been split, rising seven times in the day after earnings, and falling seven.

what analysts are saying

Mizuho analyst Vijay Rakesh recently downgraded Micron from a buy to neutral rating as recent checks showed a decline in memory value in the first half of 2023 as data-center markets begin to show signs of weak demand.

Mizuho’s Jordan Klein said investors fear Micron is “building up too much inventory as they try to keep fab utilization high to maintain better margins and drive down costs.”

Still, it expects Micron to cut its capex by up to 40% from $12 billion by 2022, Citi Research analyst Atif Malik said in a recent note. Micron recently announced that it will invest $15 billion in its new Idaho-based facility over the next decade.

Malik said, “Recent US supply chain discussions point to a sharp decline in DRAM memory prices in 3Q/4Q as weak smartphone/PC units drive high single-digit demand through prolonged low to mid teens growth.” extends to.”

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Stifel analyst Brian Chin recently began coverage on Micron on a hold rating and $56 price target, noting that the biggest near-term risk to the stock was uncertainty surrounding the depth or duration of the current downcycle.

“Pricing pressure and customer inventory burn-off are already causing revenue and margins to roll-over from the May 2022 peak, and we anticipate further decline in mid-year 23,” Chin said.

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“We believe that memory suppliers are apt to be more proactive than prior downcycles with more aggressive actions to control supply, which is an important signal to force an earlier down/brief bearish,” Stifel said. said the analyst.

According to FactSet data, 28 of the 37 analysts covering Micron have a buy or overweight rating, seven have a hold rating and two have a sell rating, with an average price target of $72.63, or as of Friday. 45% higher.

-Wallace Witkowski

 

(END) Dow Jones Newswires

09-23-22 1812ET

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