Western Digital Analyst Re-Rates As Weak NAND Pricing Weigh On Micron's 2Q Due To Demand-Supply Imbalance; Expects Some Respite In 2H23

Benchmark analyst Mark Miller reiterated a Hold rating on Western Digital Corp WDC.
Due to industry oversupply, Micron Technology, Inc MU NAND ASPs fell by mid-20% sequentially, resulting in negative margins.
NAND pricing is below cash cost. Also impacting margins was a $1.43 billion inventory write-down. Before the write-down, inventories had swelled to record levels. The free cash flow was an outflow of $1.8 billion.
The firm guided to a more significant than expected loss for 3Q.
Customer inventories are down in several end markets. As a result, Micron expects an improving supply-demand balance in the months ahead with higher bit shipments.
However, 2023 will be a challenging year for industry profitability. DRAM and NAND demand growth in 2023 will likely be below the long-term CAGRs.
Data Center inventories will likely be healthy by the end of 2023.
Micron believes its Data Center revenues have bottomed and sees sales growth in 3Q.
Micron sees PC unit sales declining by a mid-single-digit percent in 2023 versus a high teen percent decline in 2022.
Although still elevated, PC customer inventories have improved meaningfully.
After falling 10% last year, Mobile demand in 2023 will likely be slightly down.
NAND bit demand will likely grow by low teens in 2023. DRAM bit demand will likely grow 5% in 2023.
Micron’s reported 2Q sales of $3.69 billion were $10 million below consensus expectations. The non-GAAP net loss was ($1.91) per diluted share. The inventory write-down impacted earnings by $1.34/share.
Non-GAAP gross margins were a negative 31.4% versus 21.9% reported in the prior quarter and 47.2% in 2Q22.
Under-utilization charges will likely be $0.9 billion in FY23, with almost half of these charges will be in 3Q.
Micron’s non-GAAP 3Q EPS guidance for a net loss range of ($1.51) to ($1.65) per diluted share was below investor expectations of ($0.90) per diluted share, while the F3Q23 sales guidance range of $3.50 billion to $3.9 billion compared to investors’ sales expectation of $3.70 billion.
Price Action: WDC shares traded higher by 5.04% at $36.35 on the last check Wednesday.
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