Needham analyst Rajvindra Gill reiterated a buy recommendation Micron Technology, Inc mu with a target price of $67.

The company’s margins could turn negative in the third quarter of fiscal 2023, he explained.

Gill, who hosted investor meetings with Micron at the 25th Annual Needham Growth Conference, believes that increasing demand weakness in consumer end markets (PCs, smartphones, IoT) and record levels of inventory (internal, customers and distributors) have created a more significant supply – Gap in demand than previously expected.

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Storage prices are falling and the analyst believes storage vendors are still lowering utilization rates.

Gill modeled negative gross margin (-2.3%) for May, zero gross margin in August and expected a recovery later in the year. A lower gross margin may lead to further cuts.

Look to the Lehi, Utah-based company to restore positive FCF in FY24, he says.

Sales are likely to fall in the next quarter (2QF23), but parts are likely to come from below.

The analyst expects bit shipments to accelerate in F2H23 and increase in both quarters in a row.

This downturn in the storage sector was caused by demand shocks (post-COVID inventory decline, lockdowns in China) rather than a lack of supplier discipline.

Micron will remain vigilant on WFE spending in a bid to return to a positive FCF. Expect book value to remain steady at $45/share after these actions, he added.

Price promotion: MU shares traded 1.08% lower at $55.91 on the last check Thursday.