shares tend to gyrate with expectations for memory-chip pricing and demand.
Shares of Micron (ticker: MU) flew to new highs earlier in 2021 as investors grew optimistic about the outlook for DRAM and NAND memory markets. But the stock has softened since on concerns about growing inventory with cloud customers and more moderate expectations on prices.
Investors will get new insights on Micron’s outlook when the company posts financial results for its fiscal third quarter Wednesday after the market close.
For the quarter ended in May, the company originally projected revenues ranging from $6.9 billion to $7.3 billion. CEO Sanjay Mehrotra told investors in a virtual J.P. Morgan investment conference late last month that the total would likely be at or above the high end of the range. He also said non-GAAP gross margin and earnings per share would likely be strong in the quarter. Guidance had called for non-GAAP profits of $1.62 a share, give or take 7 cents, with non-GAAP margins of 41.5%, give or take a percentage point. Street consensus calls for $7.23 billion in revenue and profits of $1.71 a share.
“Demand has been strong across all end markets,” Mehrotra said. “And the pricing trends have been strong for both DRAM and NAND.” He said DRAM demand is strong with supply tightness likely to continue through calendar 2021 and into 2022. The NAND environment, he noted, is stabilizing.
For the August quarter, Street consensus calls for revenue of $7.9 billion and profits of $2.18 a share.
Wedbush analyst Matt Bryson wrote in a research note this week that the recent debate about Micron shares has revolved around concerns that a combination of factors—elevated inventories at cloud customers, slowing growth from the handset market, and component shortages affecting PC and enterprise hardware companies—could lead to increased demand in the calendar second half.
Bryson said he expects some customers are pushing back against planned DRAM price increases, but the resistance is likely to fade in the face of strong demand across multiple end markets. He kept his Neutral rating and $105 target price on shares. Micron shares traded around $83 on Tuesday.
Cowen analyst Karl Acerkman likewise noted that over the last 90 days “euphoria has turned into disenchantment,” leading Micron shares to underperform peers. But he remains constructive on the stock, anticipating in-line May quarter results and better-than-expected August guidance. He said DRAM demand will continue to outstrip supply at least through the end of 2021. Ackerman keeps his Outperform rating and $105 target.
Morgan Stanley analyst
who has an Overweight rating on the stock, said channel checks in the PC and server DRAM market were choppy, but that demand from other markets remains strong and prices are still moving higher.
Moore said the stock should rally as the market re-tightens later in the year, though his preferred memory play is
(WDC) which specifically focuses on NAND and disk drives. He said Western Digital is less widely owned and cheaper on a multiple of free cash flow basis. He said the NAND marker will be stronger than the DRAM market through the end of the year.
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