Micron Technology, Inc. MU is poised to see its profitability fall yet again in calendar 2020, according to Cowen.
This is in contrast to the bullish views most analysts are holding in following the release of the semiconductor maker's second-quarter report March 20.
The Thesis
Analyst Karl Ackerman downgraded shares Micron from Outperform to Market Perform and nudged the price target down from $46 to $45.
The Thesis
A radical change in the competitive environment; an erosion in Micron's NAND cost leadership; and Cowen's analysis of the last seven DRAM and four NAND cycles suggest Micron's profitability will decline yet again in calendar 2020, which is in contrast to what investors are bracing for, Ackerman said in the Monday downgrade note.
The analyst noted elevated levels of inventory at memory producers as well as customers.
Competitors like Samsung Electronics Co Ltd SSNLF are undercutting each other in a fairly depressed demand environment, which should impede Micron's margin progression for the balance of 2019, he said.
Ackerman's fieldwork also showed that Micron's cost leadership in 3D NAND appears to be waning.
"This, unfortunately, should result in MU's NAND cost improvement falling behind the industry in 2020 that may limit the company's ability to counteract oscillations in ASPs from temporary imbalances in supply and demand."
Cowen said its analysis of the last seven DRAM and NAND cycles and its supply chain work suggest that the trough could be a few quarters away, with derivative improvement in either NAND or DRAM ASPs not occurring until the first quarter of 2020.
The firm forecast a 40-percent decline in both DRAM and NAND ASPs in 2019 and a decline in DRAM gross margin from 59 percent in the first quarter of 2019 to 36 percent by the fourth quarter of 2019.
Gross margin is likely to normalize in the 36-37% range through calendar 2021, Ackerman said.
"Given MU's stock is highly correlated to GMs, we see the stock rangebound from here."
The Price Action
Micron shares were trading down 0.69% to $43.02 at the time of publication Monday.
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Photo courtesy of Micron.
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