Murmurs are growing on Wall Street that the expected rebound in memory chip prices is starting to look more solid.
Memory chip makers Micron (MU) - Get Report and Western Digital (WDC) - Get Report could report earnings to upside estimates in the coming month or so, according to the Cowen & Co. semiconductor analyst team.
"NAND fundamentals likely drive upside to MU and WDC's outlook," wrote the analysts in a note out Thursday evening. This comes just weeks after Susquehanna Financial analyst Mehdi Hosseini wrote in a late August note that "our updated (bottom-up) DRAM supply-demand model suggests a more balanced dynamic in 2020, followed by increased tightness in 2021."
Semiconductor makers have been working through excess inventory since September of 2018, as an oversupply of chips across the sector has rocked many big manufacturers. Now, analysts are beginning to see price increases soon, as are investors. Micron shares are up almost 50% year-to-date. Western Digital shares are up 62% on the year.
Cowen thinks consensus earnings estimates for the memory players are on the low side, making it possible that better-than-expected earnings could come in as early as the November and December quarter. For Micron, the analysts said "we wouldn't rule out NAND average selling prices increasing low single-digits on a sequential basis [quarter over quarter]," but that, "we think the company would imply ASPs [average selling prices] flat."
Analysts overall are looking for a 5.7% sequential decline in NAND prices for Micron for the quarter ended in November, with adjusted EPS for the November quarter for Micron expected to be 50 cents, or flat over expectations for the quarter ended in August.
Cowen is slightly more optimistic on Western Digital, saying it expects the company to report EPS towards the upper end of its guidance for the quarter ending in September "on more favorable NAND ASPs." Management guided for an adjusted EPS range of between 15 cents and 35 cents, and analysts are looking for 28 cents, which Cowen thinks Western Digital can beat.
Micron reports earnings for the quarter ending in August on Sept. 26. while Western Digital reports its September-ended quarter on Oct. 24.