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Micron: What’s on the Menu for FQ4 Earnings

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It’s that time of the year again for Micron (MU). On Tuesday (Sep 28), the memory giant will serve up its FQ4 (August) report.

With the conversation in the computer memory space all about the current supply and demand dynamics, Deutsche Bank’s Sidney Ho has been looking at what to expect from Micron’s upcoming quarterly statement.

According to Ho’s supply chain checks, memory pricing is “tracking in line” with expectations laid out at the fiscal quarter’s onset.

For FQ4, the analyst anticipates total revenue of $8.2 billion and EPS of $2.3, the same as the mid-point of guidance and just a tad below the Street’s call for $8.23 billion and $2.34, respectively.

Looking ahead, inventory levels remain the main area to keep an eye on. “While end demand appears to remain healthy,” Ho said, “We believe elevated inventory levels in the supply chain are leading to more difficult price negotiations for C4Q.” As shortages of non-memory components are limiting build plans In the PC market, OEMs are less inclined to take on more memory components, resulting in “softening” DRAM contract prices.

There is also a significant divergence in the view of how much inventory large cloud customers have accumulated in the server market. This has led to a “wide range of pricing expectations,” which swing from down 5-10% sequentially, to up 5% quarter-over-quarter for C4Q.

Where does Ho stand on the matter? Somewhere in the middle, actually. To reflect the “pricing uncertainty,” Ho reduced his DRAM pricing assumption for F1Q (Nov) from up 5% qoq to flat sequentially. The analyst’s expectations are generally below the Street’s, anticipating F1Q revenue of $8.43 billion and EPS of $2.49. Consensus has $8.68 billion and $2.63, respectively.

Although Ho thinks Street estimates are too high, conversations with investors indicate that expectations are already pretty low. “We believe investors will be more focused on the magnitude and duration of this pricing softness,” the 5-star analyst summed up, “While looking for positive catalysts in the second half of CY22.”

Ho remains positive overall, and sticks with a Buy rating and $95 price target. At current levels, this target suggests 26% upside for the year ahead. (To watch Ho’s track record, click here)

Going by the Street’s average target, there’s even more upside in store; the forecast calls for one-year returns of 44%, based on a $108.06 price objective. Accordingly, most analysts remain in Micron’s corner; MU’s Strong Buy consensus rating rests on 16 Buys vs. 5 Holds. (See Micron stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.