Micron Technology, a leading player in the memory and storage product market, is likely to face significant impacts on its financial outcomes due to a potential slowdown in memory procurement from key sectors, particularly personal computers and smartphones. This insight comes from the esteemed UBS Securities, communicated in a detailed note on a recent Tuesday.
The company is set to unveil its fiscal fourth-quarter results on September 25, and market analysts are keenly watching for outcomes. UBS has adjusted its non-GAAP earnings predictions downward to $1.09 per share from a previous estimate of $1.20. Similarly, the revenue forecast has been revised lower from $7.9 billion to $7.58 billion.
This contrasts with Wall Street's anticipations, targeting earnings of $1.11 per share and revenues of $7.68 billion. Recent evaluations within the industry have highlighted a noticeable deceleration in memory procurement from smartphone and PC manufacturers. Concurrently, there's an uptick in supply availability stemming from domestic Chinese memory suppliers such as CXMT (ChangXin Memory Technologies) and Yangtze Memory Technologies Corp.
UBS analyst Timothy Arcuri noted these trends in communications directed towards clients. UBS has now projected a first-quarter revenue of $8.15 billion for Micron, down from $8.97 billion as previously estimated, and below the street's average forecast of $8.46 billion. Additionally, the brokerage has also slashed its earnings and revenue projections for fiscal years 2024 and 2025.
In a strategic move, UBS has reduced its price target for Micron stock from $153 to $135. Despite this adjustment, it has maintained a 'buy' rating on the stock, citing recent weaknesses in stock performance while expressing optimism about increasing gross margins anticipated through the fourth quarter of fiscal 2025.
As noted by Arcuri, "We view this as the most important driver for the stock". This statement underscores the emphasis on gross margin movement as a critical factor influencing Micron’s valuation. He further elaborated, saying that while UBS's revised estimates align more closely with street expectations, historical trends indicate that Micron's stock tends to perform well when gross margins are on the rise.
Looking ahead, UBS forecasts a remarkable surge in high-bandwidth memory (HBM) revenues, estimating an increase to $5.61 billion by fiscal 2025 from just $603 million in 2024. "Even with short-term pricing challenges, we are optimistic that both pricing and margins will trend upward throughout 2025," Arcuri predicted, especially as Micron ramps up HBM capacity and production yields also improve.
Regarding the dynamic random-access memory (DRAM) market, UBS views the recent slowdown in price hikes as a temporary phase. It posits that PC and smartphone customers are likely to re-engage in purchasing next year, especially given the upcoming increase in memory needs for edge artificial intelligence applications.
In terms of conventional server demand, the outlook remains ‘firm’ with stable inventory levels, as per the analyst's assessment. The brokerage maintaining expectations that double data rate (DDR) contract pricing will see improvements from the first quarter through to the third quarter of 2025, amidst growing pressures on DDR capacity due to increased allocation towards HBM.
For those unfamiliar, DDR is a specific type of memory technology utilized widely across various computing applications. As of the latest market data, Micron's stock price stands at $88.35, reflecting a change of +1.17, which amounts to a percent change of +1.34. Investors and analysts alike remain watchful as these developments unfold, particularly in the evolving landscape of memory technology and its associated markets..