Tuesday was a bad day for chip stocks, when some of the key developments in the sector had a negative impact on them. The most pronounced among them was the downgrade of Micron (MU) by a Baird analyst, citing the unfavorable pricing scenario that continues to drag the company’s profitability.
Micron shares dropped more than 6% after the rating on it was lowered to underperform from outperform, and the price target slashed to $32 from $75. The setback followed a similar slump on Monday after Micron and two of its industry peers came under fire from the Chinese authorities for alleged anti-competitive behavior.
With the DRAM and NAND prices projected to fall further in the coming months, long-term shareholders are probably staring at a bleak future. The current quarter is going to be a challenging one for the memory chipmaker considering the mounting squeeze on margins. The stock has been on a downward spiral for nearly six months, and it is widely expected that the trend will continue during the remainder of the year.
The current quarter is going to be a challenging one for the memory chipmaker considering the mounting squeeze on margins
Micron being the second largest memory chip supplier globally, the rating downgrade had a ripple effect on the other semiconductor stocks, including Qualcomm (QCOM), Broadcom (AVGO), Intel (INTC) and AMD (AMD). Already In its first bear market in over a decade, the sector also faces pressure from the softening demand for some iPhone models and Apple’s (AAPL) decision to cut production.
The muted outlook suggests that Micron’s margins and earnings would keep contracting in the foreseeable future. On the positive side, DRAM prices are estimated to stabilize in the longer term, easing the pressure on the company, though the outlook for NAND remains downbeat. Micron also stands to benefit from its planned buyout of Intel’s stake in IM Flash.
After retreating from the peak earlier this year, Micron shares lost about 35%. Currently trading at the lowest level in more than a year, the stock hit a fresh low after trading started Tuesday and remained in the red throughout the session.
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