Micron Technology management comments have 'negative implications for all of semis,' claim analysts

© Reuters

By Sam Boughedda

Micron Technology (NASDAQ:MU) shares tumbled Thursday after the memory-chip maker's CFO said at a Susquehanna investor conference that it would reduce its headcount by 15% this year and cautioned that margins for the May quarter will likely be worse than expected, potentially leading to inventory writedowns.

In addition, management indicated that fiscal third-quarter revenue could be flat to down quarter-over-quarter.

"We continue to expect improving demand through the year, but pricing trends remain challenging," Micron Chief Financial Officer Mark Murphy reportedly said. "Consequently, we expect lower margins in our fiscal [third quarter] than we previously expected."

Micron shares are currently down more than 3%.

Reacting to the comments, Credit Suisse analysts, who have an Outperform rating and $66 price target on the stock, said they believe the softness is "likely tied to ongoing weakness in the datacenter end market, where inventory remains elevated."

"Based on commentary from others in the datacenter supply chain such as INTC, NVDA, and AMD, cloud demand has slowed over the past several months, which is likely exacerbating the excess memory inventory that already existed in datacenter," wrote the analysts.

Lynx Equity Strategies analysts said in a research note that they "see downside risk to MU's fiscal 2023 WFE cut of more than 50% y/y."

"MU CFO's comment obviously has negative implications for all of semis," said the analysts. "We think there is substantial risk to the view of the average semi company of a pickup in the back half of the year."

Even so, they said the firm expects MU shares to stabilize at current levels.

Stifel maintained a Hold rating and $55 price target on Micron but said they are lowering estimates.

The firm's stance is based on PC unit forecasts for CY23 further softening, which could incrementally weigh on bit demand this year, DRAM and NAND suppliers being slow to follow through with production cuts, and the fact that establishing ASP leverage could remain challenging given elevated inventories.

"We remain cautious on memory fundamentals this year though maintain our Hold rating and $55 price target, which reflects a modest premium to tangible book value," confirmed Stifel.