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There may be another shoe to drop after Micron’s big outlook miss


Micron Technology Inc. delivered an outlook that fell far short of the consensus view, prompting questions about how the memory market will fare in a downturn.

The company expects August-quarter revenue of $6.8 billion to $7.6 billion, whereas analysts tracked by FactSet had been modeling $9.15 billion. Micron’s chief executive acknowledged that “the industry demand environment has weakened,” pointing to pressures in the PC and smartphone markets.

Opinion: The chip boom likely over, as Micron says it’s in a ‘downturn’


were off nearly 6% in Friday morning trading.

Barclays analyst Tim O’Malley flagged that while Micron called out PC and smartphone weaknesses, it’s still not seeing demand issues in its datacenter business.

Micron’s outlook shortfall was “more material than expected but not capitulating on Data Center doesn’t leave the coast clear yet,” he wrote.

“On the supply side, the company is doing everything right by reducing [capital expenditures], slowing bit growth, and shipping from inventory,” he added. “We think consumer markets further weaken and there are already indications of slowing in the server market that will lead to additional cuts.”

While the memory industry has historically been able to emphasize profitability in past downturns, O’Malley wrote that “this cycle is likely much more severe than prior cycles, leaving an important test and the stock likely trades sideways until then.”

O’Malley kept his overweight rating and $75 price target intact on the stock. Of the 36 analysts tracked by FactSet who cover Micron’s stock, 31 have the equivalent of a buy rating, while three rate the stock at hold and two rate it at sell

Bank of America’s Vivek Arya was no longer one of the bullish analysts, as worries beyond consumer-facing end markets prompted him to downgrade Micron shares to neutral from buy.

“Even following topline miss of 20%, PC/smartphone (55%+ of sales) demand weakness is resulting in elevated inventory levels, which is expected to cause a multi-quarter slowdown,” he wrote. “Even outside of consumer markets, yellow flags across cloud/enterprise customers are emerging, which could potentially expand length of inventory correction.”

Arya seemed more upbeat on datacenter trends, however, writing that “[r]egardless of the cycle, cloud data center spending remains strong, and DDR5 is expected to ramp in the back half of 2022 and into next year.”

Evercore ISI’s C.J. Muse thought that Micron was “ripping off the band aid” with its outlook and saw positives in the company’s approach to profits.

“Micron plans to maintain pricing discipline and walk away from business with too-low pricing,” he wrote. “Micron is also reducing its planned WFE [wafer-fab-equipment] spend in FY23 to reduce bit output with plans to work down inventory to meet demand in CY23,” a move he expects will “weigh on” semiconductor-equipment names.

(Shares of chip-equipment companies Lam Research Corp.
KLA Corp.
Applied Materials Inc.
ASML Holding NV

and Ultra Clean Holdings Inc.

were each off more than 5% Friday following Micron’s report.)

“Lastly, it is worth noting that Micron has a very new CFO [chief financial officer] – we have to believe there is some excess conservatism in the updated outlook,” Muse added, while reiterating his outperform rating and $90 “longer-term price target.”

Raymond James analyst Melissa Fairbanks saw the demand challenges as “generally expected given increasingly bearish macro concerns” and agreed that Micron seems to be taking the right steps.

“[W]e are encouraged by the company’s commitment to protect profitability, and while it may take time for the overall market to respond to lower demand signals, MU’s decision to reduce bit output and cut capex for FY23 sets the company up to better weather near-term turbulence – executing toward the cross-cycle profitability targets,” she wrote.

Fairbanks maintained her strong buy rating but cut her price target to $72 from $115.

Micron’s stock has tumbled about 44% year to date, while the PHLX Semiconductor Index

has dropped 37.8% and the S&P 500 index

has slid 20.9%.

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