Goldman Warns on ‘Weak Fundamentals’ for Micron, Memory Chip Stocks

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Shoshanna Delventhal
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Shoshanna Delventhal is an expert in equities investing with 3+ years of experience as a business, finance, and markets reporter. Shoshanna received her bachelor's from the University of North Carolina at Chapel Hill—double majoring in economics and international relations.
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Published September 13, 2018

Shares of chip makers led by Micron Technology Inc. (MU) took a tumble on Wednesday following another bearish report from one team of analysts on the Street who expects market conditions to deteriorate in the fourth quarter and into the first half of next year.  

Weaker Fundamentals for Flash Memory Can Cause 'Snowball Effect'

"We see incrementally weaker demand datapoints combined with accelerating supply growth [in the memory chip market]," wrote Goldman Sachs analyst Mark Delaney in a note to clients on Wednesday. The analyst lowered his rating on shares of NAND and DRAM flash chip memory leader Micron from buy to neutral, citing "incrementally more DRAM memory chip oversupply" in 2019, coupled with "weaker fundamentals" in general for the flash memory market. Goldman based its outlook on discussions with industry contacts as well as its own supply/demand analysis. 

(See also: 5 Tech Hardware Stocks to Outperform: MarketWatch.)

Shares of Micron are back up 3.5% on Thursday morning after closing down 4.3% on Wednesday. Other chip stocks such as Qualcomm Inc. (QCOM) and Analog Devices Inc. (ADI) ended Wednesday with a loss over 1%, while shares of Seagate Technology PLC (STX) and Western Digital Corp. (WDC) initially fell on the news and later closed with gains. 

"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," wrote Delaney. 

The downbeat note from Goldman echoes an earlier report from analysts at Morgan Stanley highlighting rising pricing pressure and inventories in the semiconductor space. Earlier this year, chip makers were hit by reports that KLA-Tencor Corp. (KLAC) Chief Financial Officer (CFO) Bren Higgins lowered his outlook for the remained of 2018, stating that the December quarter "feels like it will be up a lot less" than initially forecasted. 

(See also: Micron, Chip Stocks at Risk of Deteriorating Industry Fundamentals: Morgan Stanley.)

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