Micron Technology's (MU) earnings release on Tuesday led to a tanking share price on Wednesday.
Shares of the Boise-based semiconductor leader fell 7.92% on the day, marking the lowest close in over a year.
The decline in shares is largely driven by the company's guidance that confirmed fears about a slowdown in memory demand and an existing supply glut. The company guided current quarter sales to between $5.7 billion and $6.3 billion and put forth EPS estimates of between $1.65 to $1.85. The outlook falls well short of the analyst consensus of $2.45 in earnings per share and sales of $7.2 billion.
"We're just going through an air pocket here related to primarily inventory adjustments as well as some seasonal, weak mobile demand, including mobile demand on the high-end smartphones that is impacting some of our near-term visibility as well as the near-term outlook," CEO Sanjay Mehrotra told analysts on a conference call late Tuesday.
Analysts have not taken well to the company's characterization of the anxiously anticipated demand forecast, as its implications are actually worse than many anticipated for DRAM and NAND memory supply and demand dynamics.
"We bristle at Micron's characterization of the current downturn as an air pocket," BMO Capital Markets Ambrish Srivastava wrote in his reaction on Wednesday. "The downturn appears broad, ranging from mobile to data center to enterprise. Our estimates are going a lot lower, as is our target price."
Srivastava slashed his price target from $38 per share to $32 per share, an over 15% cut, while maintaining his "Market Perform" rating.
The demand issues are not only broad but they may not abate any time soon either, which sparked widespread target cuts and downgrades on Wall Street.
"Micron is confident that demand will reaccelerate in [the second half of 2019] and that it can navigate through this period of inventory work own, however, we are concerned that demand conditions could worsen further and place further pressure on margins," Needham & Co. analyst Rajvindra Gill wrote on Wednesday. "While we are hesitant about downgrading at this valuation level, we believe the overall demand environment will remain murky for at least the next six months and therefore we move to the sidelines."
Gill explained that the forecast has essentially left many with no choice but to downgrade, moving his rating to "Hold" from "Buy."
He cited Mehrotra's comments on the inventory correction as extending to cloud, enterprise, and graphics market, CPU shortages, and mobile as a signal of just how far-reaching the problems in memory pricing are.
Further, given the company generates nearly 60% of its revenue from mainland China, macro issues in trade only serve to exacerbate the cyclical struggle the company is encountering.
Amid the troubled forecast, Kumar cut his price target from $48 per share to $36, noting that he is not confident in Mehrotra's bet on a bounce-back due in the second half of 2019.
To be sure, even amid the supply and demand problems ahead, some market watchers remained confident in the longer term story for Micron.
"MU's guidance for F2Q is quite a bit worse than we expected, and headwinds from oversupply look to continue through the first half of 2019," Deutsche Bank analyst Sidney Ho wrote. "However, we are encouraged that MU is reacting quickly by reducing capital spending and planned bit shipment output, which, along with capex push-outs by other memory suppliers, should set up for a recovery starting in mid-2019."
Ho maintained his "Buy" rating, but trimmed his price target from $60 per share to $48 per share, acknowledging that the recovery will take multiple quarters to shake out.
So, for the next few quarters, even the bullish analysts are acknowledging Micron is essentially dead money until late 2019.
Stephen "Sarge" Guilfoyle summed up much of the shareholder opinion on Micron in his post earnings take.
"I feel, if not misled (I guess I should have known better), then at least numerically mismanaged," he commented. "I am still trying to get out of this at or better than my net basis, but my thesis has changed. As of yesterday, I was still looking at this name as an investment. [Wednesday], I am simply trying to improve my exit from the name. See ya, Sanjay."