Shares of memory chipmaker Micron Technology Inc. (MU) - Get Report dropped 3.72% to close at $34.67 Monday after a Morgan Stanley analyst said he "did not see a rebound at any point in 2019, especially for dynamic random-access memory, or DRAM."
Analyst Joseph Moore also said he was "taking our fourth quarter number to the low end of guidance range as pricing is lower and competitors are more aggressive." Moore reiterated his equal weight rating and $33 stock price target.
"There remains too much fundamental optimism in our investor conversations about Micron in the short term," Moore wrote. "This is looking like a very typical memory turndown, which takes time to correct."
Moore said the Boise, Idaho-based company's optimism might be working against it "as our channel conversations indicate that Micron's pricing is proving too high to move product against a more aggressive competition."
The current situation with DRAM, Moore wrote, is similar to that of NAND flash memory in early 2018, as longer-term optimism is holding up prices awaiting a better environment.
"The water built up behind the dam in (the fourth quarter) as producers have optimism that it gets better," Moore wrote, "and while margins have come down meaningfully, they are still very high by historical standards. It's not a sustainable margin during a downturn, and when the balance sheet inventory dollars become large enough that producers become desperate to move product, we will see the same free fall that we are seeing in NAND now-or at least that is our working assumption until we hear differently."