Micron Surges On Samsung Memory Chip Production Cut, Goldman Price Target Boost

A move by the world's biggest memory chip maker to slow production will likely provide significant price support for U.S. rivals such as Micron and Western Digital.

Micron Technology  (MU) - Get Free Report shares lead U.S. semiconductor stocks firmly higher Monday following a move by Samsung Electronics to cut near-term memory chip production and a price target boost from Goldman Sachs. 

Samsung said Friday that it's planning a 'meaningful' reduction in semiconductor production over the coming months to tackle what it described as a glut in global chip supplies and a pullback in customer demand. 

The group, which forecast weaker-than-expected first quarter profits ahead of its more-detailed announcement later in the month, said memory chip demand has fallen sharply this year and noted customers were winding down their existing stock instead of purchasing new chips as a result. 

For the three months ending in March, Samsung said it sees revenues in the region of 63 trillion won a 19% pullback from last year's levels, with operating profit down 96% to 600 billion won ($455.5 million). Samsung's chip unit, however, is likely to see a record loss of around $1.6 billion.

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"Management guided for a memory production reduction by a meaningful amount, stating that the company believes that it has accumulated sufficient volume to respond to future demand changes," said Daiwa Capital Markets analyst SK Kim. 

"The company also guided that despite the market weakness in the near term, it expects robust demand in the mid-to-long term, and plans to continue investing in infrastructure to acquire essential cleanrooms, and expand the proportion of investment into R&D to strengthen its technological leadership," Kim added.

Micron shares, meanwhile, surged 6.5% in pre-market trading to indicate an opening bell price of $62.37 each following news of the Samsung production cut as well as a move by Goldman Sachs analyst Toshiya Hari to boost his price target on the group by $5, to $70 per share, citing a positive boost from the Samsung production cuts. 

Memory-chip making rival Western Digital  (WDC) - Get Free Report shares, meanwhile, jumped 5.3% to $37.00 each.

KeyBanc Capital Markets analyst John Vinh said the Samsung production cuts should remove any concern with respect to "irrational" supply behavior and "help regain confidence regarding disciplined capex investments in memory" and views the announcement as a positive for Micron.  

Late last month, Micron posted a narrower-than-expected second quarter loss and hinted that AI demand could support near-term revenue growth.

Micron said its adjusted loss for the three months ending in February was pegged at 57 cents per share, firmly inside the Street consensus forecast of 87 cents, with revenues falling 52.6% to $3.693 billion. Both figures were largely in-line with the group's preannouncement from March 2.

AI chip demand, however, is expected to be a "secular driver" of near-term growth for Micron, the company said, with current quarter sales likely to hold at around $3.7 billion, plus or minus $200 million, when compared to the second quarter, but that tally would still be down more than 60% from last year's levels.

“Customer inventories are getting better, and we expect gradual improvements to the industry’s supply-demand balance," said CEO Sanjay Mehrotra. "We remain confident in long-term demand and are investing prudently to preserve our technology and product portfolio competitiveness.”