When it comes to the market for memory chips, the near future may be forgettable.
The sector has been under a cloud for most of the summer as prices for NAND Flash chips have been slipping. Reports that memory-chip leader Samsung would delay the buildout of a new production line also hurt sentiment. Concerns were reinforced on Thursday after KLA-Tencor , which makes semiconductor production equipment, told investors at a conference that shipments for the December quarter will be lower than the company had previously thought. The main culprit, according to CFO Bren Higgins, was “one large project” pushed out to next year.
Those comments followed downbeat reports on memory from analysts at Morgan Stanley and Robert W. Baird. Both warned of further weakening in NAND prices. Baird also cut its price target on memory producer Micron by 25%. Another analyst, Karl Ackerman of Cowen & Co., pointed to price competition for the type of flash memory used in solid-state drives built for corporate customers.
It proved to be a perfect storm for an already waterlogged sector. Shares of KLA and Micron both fell nearly 10% by Thursday’s closing bell. Lam Research , another equipment maker even more exposed to the memory business, slid nearly 7%, while Applied Materials fell 5%. Western Digital , which owns NAND producer SanDisk, fell nearly 4%. Applied, Lam and Western Digital are now among the worst-performing chip stocks of the year, while Micron has shed about 28% from its late May peak.
All also are trading at substantial discounts to chip sector’s average multiple of forward earnings. That might look tempting considering the record sales and earnings most of these companies have booked recently, but history has shown that memory stocks don’t rise when chip prices are dropping. Investors have long memories, too.
Write to Dan Gallagher at [email protected]