Concern that a slowdown in demand for smartphones and personal computers is hurting the outlook for memory chips and other components has triggered a flurry of cautious commentary from Wall Street.
The issues affect the memory-chip manufacturers Micron Technologies (ticker: MU) and
(WDC); disk-drive producers Western and
(STX); and mobile-phone chip providers
chip analyst Joseph Moore offered cautious comments on the outlook for both Western Digital, which sells NAND memory products in addition to disk drives, and for Micron, a provider of both NAND and DRAM memory chips. He said in a research note that the markets for memory are weak in terms of volume, with DRAM prices down “mildly” in the current quarter, and NAND pricing “weaker.”
Moore kept an Overweight rating on Western Digital, a call based on a sum-of-the-parts analysis, but reduced his forecasts for earnings, noting that NAND pricing is falling faster than he had expected, due to weakness in both PCs and the Chinese smartphone market. Weakness in PCs and smartphones is spreading geographically, and beginning to affect demand for servers and other products, he said.
He lowered his calender 2022 call for adjusted earnings per share at Western Digitial to $6.99 from $8.41, and now expects 2023 profits of $6.35 a share, down from $9.66.
It is worth keeping in mind that Western Digital is in the middle of a strategic review that could result in the separation of the company’s disk drive and flash memory businesses.
For Micron, Moore maintained an Equal Weight rating, while slashing his price target to $56, from $83. Moore thinks Street estimates are far too high for Micron, noting that his own forecast is 25% below the consensus call for calendar 2022, and 46% lower for 2023. “While we appreciate the cost structure improvements and product roadmap at Micron, we are incrementally cautious around the end market outlook, and more specifically elevated inventory levels and related pressure on pricing which is trending down,” he wrote.
Mizuho analyst Vijay Rakesh hit on the same issues. In a research note focused on the outlook for the memory-chip sector, he said that “sentiment and pricing trends have softened considerably in the last month” with weakness in PCs and smartphones. He described the server sector as “the only bright spot,” but said pricing trends for both NAND and DRAM chips remain negative for the second half of the year.
Rakesh remains a long-term bull on both memory-chip companies, citing long-term strength in both 5G phones and servers. He kept Buy ratings on both Western Digital and Micron, but trimmed his targets for the stock prices, lowering his call on Western to $68 from $72. He reduced his target for Micron to $95, from $113.
In a separate note, Rakesh said checks on the smartphone supply chain point to risks for results both for the June quarter and the rest of the year, pointing to a slow reopening of commercial activity in China, weak consumer demand globally, and growing inventories. The analyst cut his forecast for 2022 5G phone sales to 630 million units, from 700 million, saying overall handset sales will be flat, and Chinese sales of 5G phones flat to down.
Rakesh maintained his Buy rating on Qualcomm, but cut his target for the stock price to $168, from $185. He also kept a Buy on Skyworks, but lowered his target to $150, from $170. For Qorvo, he remained at Neutral, with a new target of $110, down from $128.
Barclays analyst Tom O’Malley on Tuesday wrote a cautious note about disk drive demand. For the June quarter, he now sees unit sales down 6%, versus a previous forecast for flat demand. For the full year, he trimmed his unit forecast to a decline of 15% from -12%, saying revenue will be down 5%, versus 3% previously. Higher average selling prices will partially offset the lower volumes.
O’Malley noted that both Seagate and Western Digital have noted weakness in the PC and smartphone markets at recent conferences, but said that there also has been some unexpected moderation in demand for nearline drives used by data-center customers.
O’Malley trimmed his estimates for calendar 2022 and 2023 for both companies. He kept his $65 target price on Western Digital, while trimming his call on Seagate to $70, from $85.
Write to Eric J. Savitz at firstname.lastname@example.org