Supply Chain Silver Lining: Samsung's Production Cut to Benefit Micron and Restore Balance, Say Analysts

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• Mizuho analyst John Vinh reiterates an Overweight rating on Micron Technology, Inc (NASDAQ: MU) with a price target of $70.
• Samsung Electronics Co, Ltd (OTC: SSNLF) reported during its preliminary 1Q23 earnings guidance on April 7, with 1Q revenue of 63 trillion KRW below consensus of 65.1 trillion KRW and EBIT of 0.6 trillion KRW below consensus of 1.41 trillion KRW.
• With EBIT so negatively impacted, Samsung indicated it would cut memory chip production to a "meaningful level" and has reduced short-term production plans while continuing to invest in long-term infrastructure, e.g., cleanrooms, and to expand R&D.
• Although near-term demand and pricing dynamics remain challenging, the analyst is encouraged by this long-awaited production cut as this will likely facilitate a quicker return to supply-demand balance and potential rebound.
• It would also primarily remove investors' concern about irrational supply behavior and help regain confidence regarding disciplined Capex investments in memory.
• Vinh views this announcement as positive for Micron.
• Raymond James analyst Srini Pajjuri reiterates Outperform on Micron. The analyst's recent conversations in Asia suggested that Samsung previously targeted single-digit percent output reduction through line optimization.
• The analyst writes that the new announcement brings production cuts to a 10-20% level in DRAM and NAND. While that is still smaller than some peer actions, it could have a more significant impact on near-term industry supply given Samsung's size (~45% share in DRAM, ~35% share in NAND).
• In addition, Samsung's actions support his view that the company is not aggressively chasing market share (even though it appears to be maintaining its capex plans).
• Pajjuri expects Samsung's cuts to accelerate Memory price recovery and is optimistic that the severity of the current downturn will lead to structurally better supply discipline in the industry.
• Price Action: MU shares traded higher by 8.05% at $63.30 on the last check Monday.

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