Micron’s forecast is expected to shed light on how the unprecedented two-year supply crisis will be resolved

Micron Technology investors are hoping the memory-chip maker’s forecast will provide more color on supply and demand volatility over the next two years due to disruptions related to Covid-19.

Micron MU,
+ 0.89%
It is scheduled to report fiscal fourth-quarter results after the market closes on Thursday.

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

Micron CEO Sanjay Mehrotra said in late June that the company is taking steps to moderate supply growth due to recent weakness in industry demand. Now that we know parts of the chip industry are starting to build pockets of oversupply, the question naturally arises: How long before the cycle reverses?

The problem is that the supply chain issues created by the Covid-19 pandemic have been unprecedented, more or less throwing out the playbook on how to forecast chip cycles.

The Boise, Idaho-based chip maker specializes in DRAM and NAND memory chips. DRAM, or dynamic random access memory, is a type of memory commonly used in PCs and servers, while NAND chips are flash memory chips used in small devices such as smartphones and USB drives.

For most of the year, analysts have been bullish on the chip sector. A high stock price before the end of 2022 has alarmed many investors who recall the 2019 chip glut, which records sales and oversold supply through 2023, as a red flag.

Read: Nvidia CEO Jensen Huang Says ‘Moore’s Law Is Dead’ Explaining Game Card Price Rise

Morgan Stanley analyst Joseph Moore, who has an underweight rating on Micron, said supply disruptions starting with the Covid-19 pandemic are “more impactful than we’ve seen historically”.

“As we speak to purchasing managers, the number of ‘golden scrip’ units in supply is declining – but there are still enough issues that widespread stress over supply issues remains a serious concern in most markets,” Moore said. .

“There are also demand issues, mostly in difficult consumer markets that are relatively overworked at home, including some consumer electronics markets, PC gaming and, to a lesser extent, console gaming,” Moore said.

What is expected

Revenues An average of 29 analysts polled by FactSet expected Micron to post adjusted earnings of $1.41 a share, down from the $2.82 a share expected earlier in the quarter. Micron had fourth-quarter net income of $1.43 to $1.83 a share. Estimates, a software platform that uses crowdfunding from hedge-fund executives, brokers, buy-side analysts and others, require $1.54 in revenue.

Income: Wall Street expects revenue of $6.81 billion from Micron, according to 28 analysts polled by FactSet. That’s down from a forecast of $9.56 billion at the start of the quarter. Micron had forecast revenue of $6.8 billion to $7.6 billion. Estimates expect revenue of $7.04 billion.

Analysts on average expected DRAM sales of $5.1 billion, and NAND sales of $1.88 billion, according to FactSet.

stock movement; In Micron’s August-end quarter, its stock fell 23 percent, according to the PHLX Semiconductor Index SOX;
Over the same period, the S&P 500 index SPX fell 14%;
4%, and in the tech-heavy Nasdaq Composite Index COMP,
It’s down 2 percent.

Micron has met or exceeded analyst estimates every quarter since December 2018, when sales were 1% below Street consensus. In the 14 quarters since, the stock’s performance has been split, rising seven times a day after earnings, and falling seven times.

What analysts are saying.

Mizuho analyst Vijay Rakesh recently downgraded Micron from a buy to a neutral rating because recent checks indicated declining memory prices in 2018. As data center markets begin to weaken demand in the first half of 2023.

Mizuho’s Jordan Klein added that investors fear that Micron is building up too much inventory as it “strives to maintain better margins and capitalize on inflation.”

Even so, expect Micron to cut its $12 billion capex by 40% 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.

“DRAM memory prices continued to decline sharply in 3Q/4Q as recent US supply chain discussions in 3Q/4Q reflected weak smartphone/PC units with high single-digit demand bit growth from long-term low-to-mid-teens growth,” Malik said.

Read: Broadcom CEO defends ‘real demand’ view as PC, smartphone sales slide

Stifel analyst Brian Chin recently initiated coverage on Micron with a hold rating and a $56 price target, citing uncertainty over the depth or duration of the current down cycle as the biggest near-term risk to the stock.

“Price pressure and customer inventory loss are causing revenue and margins to spiral from May 2022 highs, and we see further deterioration towards mid-CY23,” Chin said.

“We believe note issuers are apt to be more active than in previous cycles with more aggressive measures to control supply, a key signal to force earlier lower/short declines,” the Stifel analyst said.

Of the 37 analysts covering Micron, 28 have buy or overweight ratings, seven have hold ratings and two have sell ratings, with an average price target of $72.63, or 45% above Friday’s close, according to FactSet data.

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