Micron Technology Inc.’s results and outlook show the memory-chip market is probably at its worst downturn in 13 years and analysts expect the bounce back may take a while.
Late Wednesday, Micron
MU,
reported results and forecast an outlook that fell short of Wall Street expectations while trimming its workforce by 10% and cutting costs as much as possible.
“It’s so bad, it’s good? Inching closer to a bottom…” is how it was cast by Evercore ISI analyst C.J. Muse, who has an outperform rating and a $65 target.
While there was good news in the form of a likely bottom of shipments in November, Muse said the bad news was the “timing of meaningful recovery is unclear” as the other parts of the “DRAM oligopoly” diverge as Samsung Electronics Co.
005930,
keeps its capex flat while, SK Hynix Inc.
000660,
cuts back like Micron.
“Utilization reductions will continue longer than originally anticipated, likely weighing on Micron’s profitability into CY24,” Muse said. “In turn, the company has suspended share repurchases with capital returns via dividend only (at least near term).”
“Add it all up and we are in the worst memory downturn in 13 years and a recovery will simply take time,” Muse said.
Cowen analyst Krish Sankar, who has an outperform rating and a $60 price target, said “this call sheds the light on how fast this downcycle is progressing and its financial impact that is worse than many have expected.” Sankar expects Micron’s gross margins to fall to 5%, or their lowest since 2009.
“Further CapEx cuts from MU are modestly helping sentiment, but absent material cuts in Samsung production amid muted end-demand and a hanging recession, the outlook could get murkier,” Sankar said. “Post call, our view has not changed much and the bull case of a C2H23 recovery as customer inventory gets worked down makes sense.”
Of the 39 analysts who cover Micron, 29 have buy-grade ratings, eight have hold ratings, and two have sell ratings. Of those, 11 lowered their price targets and two raised theirs after the earnings report, resulting in an average target of $64.74, down from a previous $67.07, according to FactSet data.
Micron shares fell 3.5% Thursday to close at $49.43, compared with a 1.5% decline in the S&P 500 index
SPX,
a 2.2% fall on the Nasdaq Composite Index
COMP,
and a 4.2% drop on the PHLX Semiconductor Index
SOX,
For the year, Micron shares are down 46.9%, while SOX index has fallen 35.8%, the S&P 500 has dropped 19.8%, and the Nasdaq has shed 33%.