Pricing problems are not fading fast for semiconductor suppliers like Applied Materials (AMAT) .
The semiconductor equipment company's shares are rising shortly after noon, up 1.38% to $35.24 as of 12:45 p.m. ET, but there is room for concern in the months ahead as inventory and pricing pressures on memory chips increase.
Shares of the Philadelphia Semiconductor Index (SOXX) have flipped back into negative territory, giving back gains realized on the open.
Poking the Bears
According DRAMeXchange, a technology market intelligence provider, both NAND and DRAM prices will remain under siege.
"DRAMeXchange expects the quotations of DRAM products to decline by 5% or more quarter over quarter in the fourth quarter 2018, terminating the super cycle of price growth for nine consecutive quarters," the report reads. "NAND Flash experienced a price drop of around 10% in the third quarter and expects a steeper drop of 10% to 15% in the fourth quarter, considering the impacts of (a) trade war."
For stocks like AMAT and Lam Research (LRCX) , this has poked the bears.
"Bears would argue that there are more downside risks to memory capex in 2019 given the continued weakness in memory pricing," Deutsche Bank AG analyst Sidney Ho wrote in a note on Wednesday morning. Ho added that bears will only be vindicated if the memory market continues to deteriorate.
Morgan Stanley analyst Craig Hettenbach is part of that bearish view, as he warned of a significant downturn.
"As we think about 2019 for memory, we would expect substantially more contraction than we saw in the 2015/16 period," he said, "For one thing, both commodities are in clear oversupply, with material under-shipment relative to product in evidence for both."
Given the forecasts, 2019 could shape up for more pain for a company like Applied Materials and its equipment contemporaries that have been battered by supply and pricing problems this year. Given the 31.7% loss investors have taken year to date, a forecast of more pain ahead is certainly a bleak one.
To be sure, some analysts are remaining optimistic as they note they explain their belief that the commotion surrounding pricing is overblown.
"Memory pricing and limited visibility has fueled bear expectations, but semi stocks have been overly punished, in our view," JPMorgan analyst Harlan Sur said.
The over-weighting of that risk, along with trade tension over-hype, led Sur to set a price target for AMAT at $63 per share.