• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / U.S. Equity

Semiconductors Slide as Memory Pricing Pressure Impacts the Industry

Micron's morning slide is indicative of a larger problematic trend.
By KEVIN CURRAN Sep 12, 2018 | 09:25 AM EDT
Stocks quotes in this article: MU, SSNLF, TOELY, INTC, HXSCL

Analysts are raising a flag on the semiconductor industry as pricing of memory technology is pressuring a number of stocks.

Micron Technology (MU) has been a particularly troubled stock amid the trend of memory price decreases, causing the stock to fall 5.4% as the market opened. The stock has fallen about 30% since May 30.

The pricing issues of DRAM in particular was a contributing factor in Goldman Sachs downgrading his firm's rating on the stock from a buy to neutral on Wednesday.

"Memory downturns usually last for several quarters and can see an acceleration in price declines, as customers delay procurement to wait for lower prices when possible, causing a snowballing effect," said Goldman Sachs vice president of investment research Mark Delaney wrote in a note this morning. "That can lead downturns to be worse than initially anticipated by investors."

The firm cut its price target for the Boise, Idaho-based chip company from $68 to $50 on the back of these concerns.

In outlining the problems with the pricing in the industry, he explained the issue lies in simple supply and demand.

"Our recent industry discussions have suggested that US hyperscale customers will likely moderate server DRAM procurement in the first half of 2019," he explained. "This is because they now have more inventory on hand, and as current projects wrap up, there is more of a focus on price instead of just getting supply at any cost."

He explained that this is a significant potential negative factor for the future of Micron and semiconductors more broadly as "DRAM has been the clear bright spot for the market."

As Micron's DRAM based business accounts for over three quarters of its gross profit, pressure on this segment in terms of both supply and demand is understandably a cause for concern.

Industry Impact

Delaney's take on Micron in particular and his concern over pricing impact was shared by his colleague, managing director of semiconductor research and equity analyst Toshiya Hari.

"We would also highlight that we are making a concerted call with our global colleagues here as we downgrade Micron, SK Hynix (HXSCL) and Tokyo Electron (TOELY) from Buy to Neutral and remove Buy-rated Samsung Electronics (SSNLF) and SUMCO SUOPY from the Conviction List," he wrote this morning in a report that raised caution on the semiconductor capital equipment market.

Hari's analysis is backed up by a TrendForce report, which shows that the impact on DRAM could be more significant than previously expected as the market becomes increasingly oversupplied.

"DRAMeXchange, a division of TrendForce, previously estimated that the contract prices of PC DRAM products will drop by around 2% quarter over quarter in 4Q18 as the market gradually shifts into oversupply," the report states. "However, it is now possible that the price decline will become larger due the shortage of Intel (INTC) CPUs and lower demand for notebooks and PC DRAM in a row."

The Philadelphia Semiconductor Index has declined about 3.5% in just the past week, reflecting this pressure.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Investing | U.S. Equity

More from U.S. Equity

On the Road to Recovery

Guy Ortmann
Aug 8, 2022 10:45 AM EDT

While a near-term pause may be in the cards, improvements in trend and breadth are encouraging.

Fundamentals Matter. This Stock Is Poised for a Major Rally

Paul Price
Aug 8, 2022 7:00 AM EDT

In today's inflationary world where else can you buy something, which has vastly increased in value, for less than it sold for nine years ago?

3 Undervalued Blue Chip Dividend Stocks for High Long-Term Returns

Bob Ciura
Aug 6, 2022 7:00 AM EDT

This diversified group of high-yielders also happen to be undervalued.

Has a Key Market Propellant Now Been Spent?

Guy Ortmann
Aug 5, 2022 11:04 AM EDT

Data suggest a period of pause and consolidation..

3 High Yield Energy Stocks With Attractive Growth Tailwinds

Bob Ciura
Aug 5, 2022 8:30 AM EDT

These names are are growing their earnings and dividends thanks to $90+ oil.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:24 AM EDT PETER TCHIR

    Jobs Report Reaction: Incredibly Strong, But Questions to Ask

    An incredibly strong July jobs report. Not only d...
  • 08:54 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The Secret to Dealing With FOMO
  • 03:51 PM EDT REAL MONEY

    AMD Second-Quarter Earnings Live Blog

    Real Money's Eric Jhonsa covers 's second-quarte...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login