We Think Micron’s Weak Q4 Results and Q1 Outlook Cement Cyclical Downturn; Reducing FVE to $70

Micron reported fiscal fourth-quarter results that suffered from deteriorating end-market conditions, with revenue falling short of management’s guidance. Although we remain positive on long-term memory demand growth stemming from trends such as artificial intelligence, 5G, electric/autonomous vehicles, and cloud computing, we now expect fiscal 2023 revenue to be down sharply (at least 30%) as the industry grapples with tepid consumer demand and oversupply. We appreciate that Micron is cutting its capital expenditure budget for fiscal 2023 to $8 billion (versus $12 billion in fiscal 2022) and will be lowering its factory utilization to curb output. Based on our lower near-term revenue and margin assumptions, we are lowering our fair value estimate to $70 per share from $90 for no-moat Micron. Although shares trade at a discount to our updated fair value, we think prospective investors should prioritize more moatworthy chip stocks such as AMD and ASML.