Shares of Micron Technology Inc (NASDAQ:MU) continued to unravel Tuesday after analysts at Baird downgraded the stock to Underperform, citing continued deterioration in both DRAM and NAND pricing which they suspected would impact gross margins.
Based in Boise, Idaho, Micron is the second-largest supplier of memory chips globally, offering chips that include DRAM, NAND flash and NOR flash.
Micron’s memory chips are used to store information, in comparison with microprocessor chips made by companies like Intel, which provide computing power.
“Continued deterioration in both DRAM and NAND pricing leads us to model eight consecutive quarters of gross margin and EPS contraction,” wrote Baird analysts Tristan Gerra and Maggie Sims in a note to clients.
The analysts flagged China as “a risk notably for NAND” in 2021 when issuing the downgrade.
READ: Baird says Micron’s full ownership of IM Flash Technologies is a long-term positive
“We model DRAM gross margin erosion from recent 71% peak to 50% in C2H20, driven by channel inventory reductions and capacity increases. NAND outlook continues to worsen, with contract pricing expected to decline mid-teens in each of the next two quarters, and spot reaching cost in C2Q19. China is a risk notably for NAND in 2021. Downgrading to Underperform,” wrote the analysts.
Baird said that by 2021, “initial NAND production from China represents an additional risk.”
The tone of Tuesday’s research note has changed dramatically from mid-October when Gerra had an Outperform rating on Micron and a $75 price target for the US chipmaker, even though its gross margin and earnings per share both peaked in its last quarter.
Micron Technology stock fell 5.3% to $34.87.
Contact Uttara Choudhury at uttara@proactiveinvestors.com
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