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Micron Technology plunges after gloomy earnings forecast sparks memory demand fears

Baird analyst Tristan Gerra reiterated underperform rating saying the ‘DRAM downcycle has just started’, while more ‘downside exists in NAND’

A Micron Technology facility
Based in Boise, Idaho, Micron is the second-largest supplier of memory chips globally, offering chips that include DRAM, NAND flash and NOR flash

Shares of Micron Technology Inc (NASDAQ:MU) continued to unravel Wednesday in premarket trading Wednesday after the chipmaker cautioned that a glut in global semiconductor supplies, along with slowing smartphone demand, would hit current quarter earnings.

For the quarter ended November 2018, Micron reported fiscal first-quarter earnings of $2.93 per share on revenue of $7.9 billion. The consensus earnings estimate was $2.90 per share on revenue of $8 billion. Revenue grew 16.3% on a year-over-year basis.

The chipmaker said during a conference call that it expects second-quarter earnings of $1.65 to $1.85 per share on revenue of $5.70 billion to $6.30 billion. This spooked Wall Street where current consensus earnings estimates hover around $2.42 per share on revenue of $7.57 billion for the quarter ending February 28, 2019.

"We're just going through an air pocket here related to primarily inventory adjustments as well as some seasonal, weak mobile demand, including mobile demand on the high end smartphones that is impacting some of our near-term visibility as well as the near-term outlook," Micron Technology CEO Sanjay Mehrotra told analysts on a conference call.

Meanwhile, analysts at Baird reiterated an Underperform rating for the stock, citing continued deterioration in both DRAM and NAND pricing in the face of a worsening downturn.

Based in Boise, Idaho, Micron is the second-largest supplier of memory chips globally, offering chips that include DRAM, NAND flash and NOR flash.

READ: Micron’s DRAM and NAND contract pricing decline in November, says Baird analyst

Micron’s memory chips are used to store information, in comparison with microprocessor chips made by companies like Intel, which provide computing power.

“Reiterating Underperform rating as DRAM downcycle has just started, while more downside exists in NAND given contract pricing's significant premium versus spot and our expectation spot will hit cost in C2Q19,” wrote Baird analysts Tristan Gerra and Maggie Sims in a note to clients.

“Memory downturns are compounded by significant inventory reductions at customers and in the channel. In DRAM, we remain unconvinced Micron's competition will be as proactive reducing bit supply given a still very-high gross margin profile, while reduced profitability in NAND incentivizes suppliers to migrate to lower-cost architectures but which potentially limits supply reductions,” they added.

The analysts currently have a $32 price target on the stock.

The tone of Wednesday’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 6.8% to $31.76.

Contact Uttara Choudhury at [email protected]

Follow her on Twitter@UttaraProactive 

Quick facts: Micron Technology, Inc.

Price: 51.2 USD

NASDAQ:MU
Market: NASDAQ
Market Cap: $56.74 billion
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