Micron Technology Inc. (MU) shares fell 2.2% Friday after the chipmaker said President Donald Trump's decision to apply tariffs on certain China-made imports would trim the group's quarterly profits.
Micron said that the cost of moving some of its operations out of China, where it assembles and tests some of its NAND and DRAM memory chips, would weigh on margins as it attempts to navigate the planned 10% tariffs on $200 billion worth of China-made goods that go into effect next week. It also signaled lower revenues thanks to a shortage of processing chips for computers and laptops that has been impacting the broader tech industry. The Bosie, Idaho-based group now sees gross margins in the 57% to 60% range and current quarter sales of around $8.4 billion, both of which fell short of Wall Street forecasts.
"Our markets remain healthy and demand from our customers is strong, but we are seeing some impact of CPU shortages in the client compute market and limited inventory adjustments at select customers," said CFO David Zinsner. "We expect gross margins to remain very healthy in the fiscal first quarter, although lower than fourth quarter levels, and our gross margins will also be impacted in the near-term, by the announced 10% tariff on $200 billion of imports from China, which will go into effect on September 24th."
"We are working to gradually mitigate most of the impact from these tariffs over the next three to four quarters," he added on a conference call with investors. "Clearly, tariffs are impacting us, probably to the tune of 50 to 100 basis points. We are working on steps to mitigate that. That obviously takes some time."
Prior to its conference call, however, Micron reported August quarter (fiscal fourth quarter) revenue of $8.44 billion and non-GAAP EPS of $3.53, topping consensus analyst estimates of $8.25 billion and $3.33. However, it guided on its earnings call for revenue of $7.9 billion to $8.3 billion and EPS of $2.88 to $3.02, below a consensus of $8.45 billion and $3.08.
Earlier this month, Goldman Sachs analysts lowered their rating on the chipmaker and slashed their price target to $50 a share.
Goldman analyst Mark Delaney cut his rating on the stock to neutral from buy while lowering the price target buy 26% to $50 amid what he sees as declining gross margins and weakness in sales of DRAM, which accounts for over three-quarters of its gross profit, and NAND chips. He also pegs his own 2019 earnings forecast well below the market consensus.
Research firm TrendForce recently noted that PC DRAM contract prices were flat in August, and HP Enterprise (HPE) stated on its Aug. 28th earnings call that DRAM price increases "appear to have peaked."
And although Apple's (AAPL) fall iPhone ramp and broader seasonal strength could still prop up DRAM prices in the near-term, it's not hard to imagine a moderate price decline by early 2019.