Since March 6, analysts from Susquehanna, Wells Fargo, and other firms downgraded Micron Technology (NASDAQ:MU). Citing the usual issues of falling prices and excess supply, the negative view holds some merit. Investors will not know for sure how Micron’s business will fare this year until it reports results this week on March 20.
Falling DRAM and NAND prices will have a material impact on Micron’s results in the upcoming earnings report. Even if prices recover, which is unlikely, it is already too late for 2019 for Micron to rebound. This assumes the inventories are in excess and the channels must work off the glut.
Smartphone sales fell sharply in China and are a significant driver for storage and memory usage. Although models like the Samsung S10, Huawei P20, and OnePlus renew the refresh cycle, demand may not be there to move chip prices.
Takeaway
DRAMExchange is forecasting a sharp drop of 30% in contract prices for Q1. If true, the 3x P/E in MU stock will become 6x – 10x as earnings contract. Investors who do not want to time the renewed chip cycle could start a position in MU stock and other chip stocks like AMD, Nvidia (NASDAQ:NVDA), and Intel (NASDAQ:INTC). Selling calls or buying puts may give the insurance against another downturn in chip prices for 2019.
