Micron Technology Inc. is leading memory-oriented tech stocks downward in Wednesday’s session, after another analyst expressed concern about supply and demand in the industry.
Goldman Sachs analyst Mark Delaney downgraded Micron MU, -5.77% shares to neutral from buy on Wednesday, warning of lower memory average selling prices, oversupply in NAND, and a “more challenging” supply-and-demand balance on the DRAM side.
Micron shares dropped 5.9% in morning trade, to pace the 28 of 30 PHLX Semiconductor Index SOX, -3.11% components that were declining. The selloff put Micron shares on track to close at the lowest level since Feb. 9.
“Memory downturns usually last for several quarters and can see an acceleration in price declines, as customers delay procurement to wait for lower prices when possible, causing a snowballing effect that can lead downturns to be worse than initially anticipated by investors,” Delaney wrote. He said the downturn that began in 2015 lasted six quarters, with prices falling by 50% from the high point.
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The largest sequential ASP decline took place in the fifth quarter of that downturn, Delaney said, though he expects a “more benign DRAM downturn” this time around given “improved industry discipline and profit focus.”
Delaney said he wasn’t making a call on Micron’s fiscal fourth-quarter results, due out Sept. 20, but his concerns were more based on his prediction for sequential gross-margin declines from that quarter leading into the second half of the next calendar year.
He lowered his price target on Western Digital Corp. WDC, +2.11% shares to $63 from $80 and reduced his Seagate Technology PLC target to $39 from 44. Seagate STX, -0.31% shares are down in Wednesday’s session, while Western Digital’s stock is rallying following a 3.6% drop on Tuesday.
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Delaney’s comments came a day after RBC Capital Markets analyst Amit Daryanani downgraded WDC’s stock to perform from outperform. In general, there’s been concern about memory stocks in recent weeks. Micron’s warned of NAND pricing issues at a recent conference.
Also on Wednesday, Delaney’s colleague Toshiya Hari cut his rating on Lam Research Corp.’s LRCX, -3.27% stock to neutral from buy and also lowered his view of the overall semiconductor-equipment category to neutral from attractive.
“While there was initially hope that Samsung’s 005930, -1.11% decision to push out DRAM spending was specific to the company and was related to node transition issues as opposed to supply/demand issues, we now envision a more broad-based correction in memory capex in 2019, as memory manufacturers digest what we perceive to be excess capacity in NAND and to a lesser extent DRAM,” wrote Hari.
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Lam shares are down 3% in Wednesday morning trading, as are Applied Materials Inc. AMAT, -3.08% and KLA-Tencor Corp. KLAC, -3.99% shares. ASML Holding NV’s ASML, -4.91% stock is down 5% in the session.
There’s been debate among analysts as to whether the semiconductor-production selloff is justified. Morgan Stanley has cautioned that a rebound might take longer than anticipated, but J.P. Morgan argued last week that the selloff was an “overreaction.”
Micron shares are down 20% over the past month, while Lam’s stock is off 15%. The S&P 500 SPX, -0.17% has gained 1.7% in that time, as the PHLX Semiconductor Index has fallen 2.5%.
