DRAM and NAND pricing continues to deteriorate, says Goldman Sachs

Recent industry discussions suggest that memory fundamentals “remain very soft, and prices continue to decline,” Goldman Sachs analyst Mark Delaney tells investors in a research note. His industry contacts suggest DRAM pricing could be down 20%-25% and NAND pricing could be down in the 20% range quarter-over-quarter in Q1 of 2019. This is in contrast to the significant rally in the memory and hard-disk-drive stocks year-to-date “even on weak fundamentals,” contends the analyst. Shares of both Western Digital (WDC) and Micron Technology (MU) are up 24% year-to-date. Investors historically have not been rewarded by being too early buying memory stocks, cautions Delaney. He now believes earnings scenarios that investors considered unlikely six months ago “when memory started to roll are rising in probability.” As an example, the $3.00-$4.00 earnings per share downside scenario that he published in his Micron downgrade note last September is now the analyst’s base case. Delaney says memory and HDD stocks could give back some of the recent stock gains “if memory fundamentals are weak and investor expectations for the slope/timing of a recovery moderate.” The analyst lowered his estimates for both Western Digital and Micron and keeps Neutral ratings on both stocks.