Micron Technology (MU) shares led U.S. semiconductor stocks firmly higher on Monday after Samsung Electronics cut near-term memory chip production and Goldman Sachs lifted its price target on the U.S. group.
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 South Korean group forecast weaker-than-expected first-quarter profit ahead of its more-detailed announcement later in the month. The company said demand for memory chips has fallen sharply this year and noted that customers were winding down their current inventories instead of purchasing new chips.
For the three months ending in March, Samsung said it saw revenue in the region of 63 trillion won, a 19% pullback from a year earlier, with operating profit down 96% to 600 billion won ($455.5 million). Samsung's chip unit is likely to see a record loss of around $1.6 billion.
"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 8% in early afternoon trading trading to change hands at $63.20 each. The market move followed news of the Samsung production cut as well as Goldman Sachs analyst Toshiya Hari's decision to boost his price target on the U.S. group by $5, to $70 a share, citing a boost from the Samsung output cut.
Shares of memory-chip rival Western Digital (WDC), meanwhile, jumped 7.8% to $37.88 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 [capital spending] investments in memory." He views the announcement as a positive for Micron.
Late last month, Micron posted a narrower-than-expected second-quarter loss and hinted that artificial-intelligence demand could support near-term revenue growth.
Micron pegged its adjusted loss for the three months ended in February at 57 cents per share, firmly inside the Wall Street consensus forecast of 87 cents. Revenue fell 53% to $3.69 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. Current-quarter sales were likely to hold at around $3.7 billion, plus or minus $200 million, compared with 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.”
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