Micron Downgrade

Piper Sandler downgraded Micron’s stock to underweight and reduced their price target from $90 to $70. They cited Micron’s high relative exposure to consumer-dependent types of memory as well as declining DRAM and NAND prices. I have a couple of thoughts on this. One, their pricing call is accurate for DRAM, but not timely. Spot prices have been gradually declining there for a couple of months, and the slope down has slowed recently. NAND has actually been strong in the last quarter, following the loss of production at Kioxia. It may be they have other sources of pricing intelligence beyond the spot market that this call is based on. But pricing is the big unknown in memory and the single most important factor in Micron’s stock performance, and nobody knows where ASPs will be next month, let alone three or six months from now. I continue to hold the view/hope that supply chain constraints will gradually clear as the year goes on, unlocking more memory demand. I don’t know what will happen either though. As I’ve said before on this board, my confidence in predicting the timing of the memory cycle is mostly gone since COVID hit.

On their commentary about exposure to consumer markets, I think this is mostly wrong. Micron is no more or less exposed to consumer-facing memory markets than either Samsung or Hynix, in DRAM at least. With three players left in DRAM, all the remaining companies have to serve all segments and none of them can deviate too far from their market share in each. Sometimes the weighting to each segment is good, because of the vagaries of pricing, and sometimes it is not. But all three are regularly remixing their lines to try and match market demand. If one is overweight to a segment, say PCs, and it is oversupplies, they will shift mix away and in a cycle or so the supply to that segment will be lessened.

-S. Hughes (long MU)