By Senad Karaahmetovic
Micron Technology (NASDAQ:MU) shares are up about 6% in premarket Monday after Samsung (KS:005930) announced on Friday it plans to meaningfully cut memory production.
The South Korea-based giant cutting memory production is seen by analysts as a “huge positive” for the entire industry, and particularly for Micron and Hynix (KS:000660).
“This is a big deal,” said Citi analysts, who remind investors that Samsung has a ~50% market share in the DRAM (dynamic random-access memory) market.
“We believe the cuts to both capex and production by the three DRAM providers should help ensure a DRAM recovery beginning in the 2H23, especially considering PC demand (roughly 10% of DRAM) appears to have stabilized and we expect both data center demand (roughly 40% of DRAM) and handset demand (roughly 30% of DRAM) to both stabilize in 2H23,” they said in a note.
Goldman Sachs analysts agree as Samsung’s announcement is a “positive surprise and bodes well for Buy-rated MU.” The analysts hiked the price target by $5 per share to $70.
“We believe ongoing, unprecedented and broad-based production cuts — which now includes participation from the industry’s largest producer, Samsung — coupled with stabilization in the demand environment will drive a recovery in fundamentals in 2024 that exceed current Street consensus,” they said.
For KeyBanc analysts, the announced cuts “should help the industry reach supply-demand balance earlier than previously expected.”
“We expect MU shares to react positively in the near term from Samsung's official announcement, but our conversations with investors over the past few weeks suggest that many investors have already anticipated some cuts by Samsung, which explains why MU shares have held up quite nicely despite weakening fundamentals,” they wrote in a note.