Micron Technology Inc. shares tumbled Monday after an analyst for a Japanese financial company downgraded the stock on concerns the U.S.’s largest maker of memory chips will continue to underperform until the industry for dynamic random access memory cuts production.
The Boise company’s shares fell as much as 7 percent after Nomura analyst Romit Shah downgraded the stock to reduce from neutral and cut his price target to $8 from $12. They recovered to close at $11.58, a 30-cent drop, or 2.5 percent.
Recent checks in Taiwan and Korea indicate that the supply of DRAM is growing and “there seems to be no intention to cut production,” Shah said in a note Monday.
Micron stock has plunged about 60 percent in the past year compared with a 3.6 percent drop in the Standard & Poor’s 500 Index.
“This particular factor affects Micron substantially,” said Anand Srinivasan, an analyst at Bloomberg Intelligence. “If the information coming from Asia is true and supply is not slowing down, that’s bad for the DRAM industry and particularly bad for Micron,” given that about 58 percent of its sales come from that business, he said.
Like other chipmakers, Micron is struggling to squeeze out earnings from a commoditized memory-chip business, while factory output increases across the industry even as demand stagnates.
The glut implies lower average selling prices for DRAM products, which Nomura doesn’t think is factored into Wall Street’s expectations for a strong margin recovery in the second half of 2016.
“Memory suppliers are characterizing the environment as a perfect storm,” the note said. “While demand is weak, DRAM suppliers are also facing what we perceive as a prisoner’s dilemma. Rationally, it is in their best interest to cooperate, but Micron, Hynix and Samsung have no intention of bringing down utilization.”