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Micron's Profits Will Disappoint Because Chip Prices Are Plunging, Analyst Says -- Barrons.com



Dow Jones Newswires March 05, 2019 12:48:00 PM ET

Falling memory chip prices will have a large negative impact on Micron Technology's (ticker: MU) profits, according to Susquehanna Financial Group.

The back story: Micron shares have rallied more than 25% so far this year in anticipation of a recovery in the second half of the year. The chip maker is a leader in DRAM and NAND memory chip manufacturing.

DRAM refers to dynamic random-access memory, used in desktop computers and servers. NAND is flash memory, which is used in smartphones and solid-state hard drives.

What's new: Susquehanna Financial Group's chip analyst Mehdi Hosseini is pessimistic about Micron's stock price because of continued weakness in memory chip pricing.

We are "reducing memory estimates to account for weaker DRAM/NAND ASP [average selling price] trends," he wrote on Tuesday. "Recent industry checks suggest DRAM and NAND pricing in [the first half of 2019] tracking below prior expectations."

Micron stock was down 1.9% to $40.29 on Tuesday. Micron didn't immediately respond to a request for comment.

The analyst said the lower pricing will likely mean the company will report profits lower than the Wall Street consensus this year. As a result, Hosseini lowered his fiscal 2019 per-share earnings forecast for Micron to $6.40 from $6.59.

On Tuesday, TrendForce said first-quarter DRAM pricing will likely drop by about 30% versus its original forecast for a 25% decline. That would be the biggest quarterly decline since 2011.

Looking ahead: Hosseini raised his Micron price target to $35 from $33, representing a 13% decline from the current level.

Deutsche Bank chip analyst Sidney Ho, meanwhile, believes a recovery in chip demand later in 2019 could drive better earning performances from the company. He reiterated his Buy rating and $48 price target for Micron stock on Monday.

Write to Tae Kim at tae.kim@barrons.com
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