There’s too much memory and not enough people buying it.
After a strong first half of 2020, customers that used to buy tons of memory devices made by companies such as
(ticker: WDC) and
(MU) have slowed their purchasing, resulting in problems for the companies that sell such products and their stocks, according to the consensus of analysts. The culprit appears to be fewer orders of memory devices destined for data centers and enterprise customers.
downgraded Micron stock to Hold Wednesday; Cascend Securities dropped its price target to $55 from $70; and
lowered its projected price to $55 from $60.
BMO Capital Markets didn’t adjust its target price or rating on the stock, but said memory demand was weak. At a conference Thursday, Micron’s executives sounded cautious, according to BMO Capital Markets analyst Ambrish Srivastava.
In a Wednesday note to clients, Deutsche Bank analyst Sidney Ho wrote that after Western Digital’s weak guidance following its earnings, his team checked the memory supply chain and found that companies that ran data centers had accumulated a significant number of memory devices. One culprit: pantry loading because of supply-chain fears related to the Covid-19 pandemic, and that accumulate memory means customers will buy less in the coming quarters. But, there’s trouble in Micron’s future because demand for data center memory is slowing, along with mobile phones and personal computers.
“We expect consensus estimates to come down sharply from the current levels especially for the next two quarters, which will likely put pressure on the stock valuation,” the analyst wrote. “While we continue to like the secular story of [Micron] and the memory industry, we tactically step to the sidelines until we get more clarity about the magnitude and duration of the current downturn.”
Barclays analyst Blayne Curtis pointed to falling prices for dynamic random access memory (DRAM), which is used in personal computers and data centers. In a note to clients Thursday, Curtis wrote that his team learned that prices had fallen 20% over the past three months but said that data was confusing because, while enterprise demand was soft, the appetite for personal computer and mobile phone memory was tracking better—with the larger amount of memory in new 5G phones and upside from Chromebook sales driving the trend.
“From here, [Micron] likely trades sideways until we have a better understanding of what 2021 will look like with the PC and Enterprise markets likely down,” Curtis wrote. “This is the first major sign of weakness in the group after most guided to strong Septembers.”
Cascend Securities analyst Eric Ross wrote in a note to clients Thursday that his bank also sees shrinking demand for DRAM in part because data centers are still integrating all the equipment they purchased during the pandemic. Representing about 30% of the company’s revenue, data center weakness will weigh on the stock price.
Wall Street has scaled back its sales estimates for the fiscal first-quarter by 3.4% in the past month. Micron stock dropped 4.5% in the past three trading days. In the same period, the
index advanced 1.2% and the
PHLX Semiconductor index
Write to Max A. Cherney at [email protected]