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Micron Analyst Says Lower DRAM Prices Over First Half Of 2020 Will Delay Margin Recovery

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Micron Technology, Inc. (NASDAQ: MU) shares are down 11.6% since the company’s earnings and guidance disappointed the market last week.

Investors were hoping Micron’s memory market would recover in the second half of 2019, but one Wall Street analyst said Friday that the DRAM market may not be back on solid ground until the second half of 2020.

The Analyst

Raymond James analyst Chris Caso reiterated a Market Perform rating on Micron.

The Thesis

DRAM volume was up 30% quarter-over-quarter, but pricing was down 20%, Caso said in a Friday note. (See his track record here.)

NAND volume growth was in the low double-digit percentage range, while pricing dropped in the high single-digits, the analyst said.

“Looking forward, as we noted in our Asia update earlier this week, our checks suggest the combination of excess inventory and seasonality is likely to send DRAM prices back lower through 1H20, which would serve to delay the recovery of margins. Importantly, with cost coming down more slowly than in the past, DRAM margin recovery will likely be dependent on sustained DRAM price improvement, which we don’t think will occur until 2H20.”

Micron guided for fiscal 2020 capex of between $7 billion and $8 billion, down 30% from a year ago.

Following the earnings report, Raymond James lowered its fiscal 2020 non-GAAP EPS estimate from $2.92 to $2.24, which is based on a mid-teens percentage decline in revenue and continued margin pressures.

In addition, the firm initiated a calendar 2021 EPS estimate of $4.80.

Benzinga’s Take

The good news for Micron investors is that the memory market will eventually balance out and the next cyclical pricing upswing will be a tailwind for the stock. The bad news is that the upswing — and share price recovery — may take longer to materialize than investors had hoped.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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Latest Ratings for MU

Sep 2019

Maintains

Sell

Sep 2019

Maintains

Underperform

Sep 2019

Maintains

Neutral

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