Chip gear makers to take a beating after Micron’s dour forecast

(Reuters) – Shares of the chip gear makers fell after a tepid forecast by the U.S. Micron Technology, Inc. (MU.O) reinforces the fear that a two-year chip boom was fizzling due to a decline in demand from manufacturers of smartphones, pcs, and servers.

Memory chip parts of the U.S. memory chip maker MicronTechnology are shown on their stand at an industrial fair in Frankfurt, Germany, July 14, 2015. REUTERS/Kai Pfaffenbach

The industry suffers from a supply glut as output, including the South Korean rivals Samsung Electronics Co Ltd (005930.KS) and SK Hynix (000660.KS), transcends chip demand and pressure on prices.

Wall Street analysts said chipmakers will have to cut capacity for the industry to recover and prices stabilize.

Micron Chief Executive Officer Sanjay Mehrotra said weaker demand in DRAM will likely to persist until the first half of calendar 2019 with a recovery expected in the second half.

“Our bigger picture concern is that the price drops by the calendar (first quarter), we seem to be nowhere near a market clearing price in DRAM or NAND,” Morgan Stanley analyst Joseph Moore wrote in a client note.

Micron hinted it would look to reduce production to better align with the decreasing demand. Rival Samsung has also indicated it would evaluate the production, according to reports in the media.

The shares of the VAT Group (VACN.S), seen as a bellwether for the industry, fell by almost 6 percent after the Swiss vacuum valve maker said weak chip demand will be forced to the production employees on shorter working hours.

The industry have weighed on the U.S. chip equipment manufacturers. Lam Research Corp (LRCX.D) decreased by 3 percent, while Applied Materials (AMAT.O) slid 1.6 percent. U.S.-listed shares of ASML Holding NV, ASML.O) fell 1.8 percent.

Micron’s shares were down 7 percent to $31.21, while that of peer Hynix fell 1.3 percent.

At least eight brokerages lowered their price targets on Micron, with J. P. Morgan and Evercore ISI cut their targets by $20, respectively. Needham and RBC downgraded the stock to “hold”. The median price target on the stock was $ 48.

Micron shares have fallen nearly 17 percent this year, in comparison with the rest of the Philadelphia SE Semiconductor Index .SOX 6 percent decline.

Reporting by Sonam Rai in Bengaluru; Editing by Sriraj Kalluvila

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