DRAM and NAND Flash prices continue to deteriorate, analysts say Micron's future is in jeopardy

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Baird analyst Tristan Gerra downgraded Micron Technology to underperform on Tuesday (2), citing the long-term impact of the company's plunge in memory prices.

Micron's stock price fell 2.01% to $36.09 before press time. Its stock price has fallen by more than 20% in the past three months as investors have become increasingly concerned about the deterioration of the semiconductor cycle.

Baird downgraded Micron from "outperform" to "underperform" and lowered its price target from $75 to $32, which means the stock could fall about 12% more.

Analyst Tristan Gerra wrote in a report to clients on Tuesday: "DRAM and NAND Flash prices continue to deteriorate, resulting in eight consecutive quarters of shrinking gross margins and earnings per share. The NAND Flash outlook continues to deteriorate, and contract prices are expected to fall by about 15% in the next two quarters."

Gerra expects DRAM memory production capacity to grow at an annual rate of 10% to 15% over the next two years, resulting in a 30% to 35% drop in DRAM prices next year.

Gerra expects Micron's gross margin to fall to 50% by 2020 from 71% at the beginning of this year, and lowered its fiscal 2019 earnings per share forecast to $9.78 from $11.00.

Chinese authorities are currently conducting an antitrust investigation into Micron, Samsung Electronics, and SK Hynix, the three largest DRAM manufacturers with a market share of more than 95%. Beijing officials have stated that the investigation has made significant progress. The market is worried that if the antitrust facts are established, high fines will be imposed on the three manufacturers, which may put DRAM prices under pressure and the market supply and demand situation may also change, which will in turn affect the operations of Taiwanese manufacturers, adding uncertainty to the outlook for the memory industry next year.

中国政府对美光、三星电子与 SK 海力士展开反垄断调查，且近期取得「重大进展」，已发现大量证据可证明三巨头垄断市场，此举也被视为对美国司法部指控其国有企业福建晋华窃取美光商业机密的反制措施，中国官方可能藉此作为贸易战中的筹码。

If the antitrust results are released and it is determined that the three giants manipulate market prices, they may be fined up to more than US$2.5 billion each, which will put pressure on DRAM prices and may also cause changes in market supply and demand, which will in turn affect the operations of Taiwanese manufacturers.

Although DRAM prices began to reverse and fall in the fourth quarter, domestic memory manufacturers are not too pessimistic about the outlook for next year. Nanya Technology, Winbond Electronics and ADATA are all optimistic that new applications will continue to boost DRAM demand momentum, and are not too pessimistic about the industry development next year. Nanya Technology and ADATA believe that DRAM prices will remain stable and fall slowly next year.

However, if the Chinese authorities decide to impose heavy fines on Micron and other three major memory giants, it will inevitably add uncertainty to the industry outlook next year, and the overall market outlook will become even more unclear.

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