Needham analyst Rajvindra Gill reiterated a Buy rating on Micron Technology, Inc MU with a $67 price target.
The company’s margins could turn negative in the third quarter of fiscal 2023, he explained.
Gill, who hosted investor meetings with Micron at the 25th Annual Needham Growth Conference, believes incremental demand weakness in consumer end markets (PCs, Smartphones, IoT) and record levels of inventory (internal, customer, and distributor) has created a more significant supply-demand gap than previously expected.
Memory prices are falling, and the analyst believes memory suppliers are still cutting utilization rates.
Gill modeled a negative gross margin (-2.3%) for May, a gross margin of zero in August, and anticipated a recovery later in the year. A lower gross margin may lead to further cuts.
Look for the Lehi, Utah-based company to restore positive FCF in FY24, he says.
Revenue will likely decrease next quarter (2QF23), but bits will probably come off the bottom.
The analyst expects bit shipments to accelerate in F2H23, sequentially increasing in both quarters.
This downcycle in the memory sector was driven by demand shocks (post-COVID inventory drawdown, China lockdowns) rather than a lack of supplier discipline.
Micron will remain vigilant on WFE spending to return to positive FCF. Expect book value to remain steady post these actions at $45/share, he added.
Price Action: MU shares traded lower by 1.08% at $55.91 on the last check Thursday.