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Micron Eyes Worst Day Since 2015 After Outlook Disappoints

Ryan Vlastelica

(Bloomberg) -- Micron Technology Inc. shares tumbled on Friday after the chipmaker gave a forecast for both earnings and gross margins that was below expectations. The company’s chief executive officer also warned about the impact that global trade tensions were having on its business.

Despite the cautious commentary, many analysts suggested that the worst may be over for the company, seeing signs of a trough in the market for memory chips. As Credit Suisse wrote, this was “a messier bottom, but still a bottom.” Barclays said that while the quarter’s results didn’t represent “the perfect start to the recovery,” they did indicate that the memory market “does seem to be heading to a better place.”

Shares fell as much as 11.4% in their biggest drop since January 2016, and are on pace to see their largest one-day percentage decline since June 2015. The loss comes after Micron surged nearly 50% between a June low and the close of trading on Thursday. Rosenblatt Securities credited the drop to profit taking after the recent rally, and added that “investors should be opportunistic” in buying on weakness.

The Philadelphia Semiconductor Index dropped as much as 2.9%, participating in a broad market decline. Among other names, Applied Materials fell 5.6% while Lam Research was down 6.1%. Western Digital Corp. lost 2.4%.

Here’s what analysts are saying about Micron’s results:

Citi, Christopher Danely

The outlook was “well below what we believe were sky-high expectations.”

The market for DRAM chips “is closer to the bottom and Micron is demonstrating higher trough earnings.”

Raises price target to $35 from $30, which matched the Street-low view. Reiterates sell rating, citing the stock’s recent advance.

Credit Suisse, John Pitzer

This was “a messier bottom, but still a bottom.”

While the results were “disappointing” in the near term, the firm has increased confidence that Micron is “in a profitable cycle bottom for the first time ever” and that inventory levels at customers “have returned to normal levels.”

Outperform rating, price target a Street-high $90.

Morgan Stanley, Joseph Moore

The inventory increases “seem problematic” and suggest that “things are going to get tougher from here.”

“Not overly alarmed” by the gross-margin outlook; “the really daunting data point is that the company built inventory dollars” in a meaningful way on a sequential basis, even in the seasonally strongest quarter of the year.

Equal-weight rating, $48 price target.

Barclays, Blayne Curtis

Despite better-than-expected revenue, the focus will be on the gross-margin outlook, which was “disappointing.”

“Despite all the increasing enthusiasm on pricing, it’s not flowing to the bottom line.”

This “wasn’t the perfect start to the recovery,” but “the memory market does seem to be heading to a better place and we would be interested if the stock pulls back.”

Overweight rating, $50 price target.

KeyBanc Capital Markets, Weston Twigg

While Micron is seeing “improving demand,” memory pricing “remains depressed and [gross margins] may remain low until demand trends accelerate.”

Affirms overweight rating, citing the long-term potential of the memory market and the company’s competitive position. Price target raised by $1 to $59.

Rosenblatt Securities, Hans Mosesmann

The results “indicate we are starting a recovery phase in the memory semiconductor cycle.”

Says the negative reaction to the quarter is “profit taking,” and adds that “it is clear to us that the cycle has turned, Micron is a stronger company in virtually all aspects of the business, and investors should be opportunistic” in buying on weakness.

Buy rating, price target raised to $80 from $60.

What Bloomberg Intelligence Says:

Despite “improving NAND and DRAM fundamentals,” steep price declines and other factors “may roil margins” in the first half of next year. “The magnitude and length of the supply-demand mismatch may determine how quickly balance can return to drive sales growth in 2020.”

- Analyst Anand Srinivasan

- Click here for the report

(Updates stock in third paragraph)

To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Scott Schnipper

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