Cloud Customer Behavior And Asian 'Economic Trends' Prompts Analyst 'Concern' About Memory Stocks

Benchmark analyst Mark Miller downgraded Western Digital Corp WDC to Sell from Hold with a $34 price target.

Miller noted that Seagate Technology Holdings PLC STX joined other firms like Micron Technology, Inc MU and Nvidia Corp NVDA in lowering outlooks. 

The analyst also downgraded Seagate to Hold from Buy. Seagate lowered its forecast for Q1. 

The combination of lower revenue, increased under-utilization charges, and a less favorable product mix in the September quarter will also result in a sequential decline in margins, with non-GAAP EPS now expected to be meaningfully below Seagate’s prior guidance. He sees these trends persisting at least through the end of this year. 

Miller was especially concerned about Seagate’s comments about inventory issues and caution among some of its cloud customers, which have implications for Western Digital. 

Also, continued economic softness could lead data centers to cut their 2023 capital spending plans. As such, Miller again lowered FY23 estimates, reflecting both lower sales and margins. 

Seagate cited weaker economic trends in certain Asian regions, amplified customer inventory corrections, and supply chain disruptions. Seagate also sees more cautious buying behavior among global Enterprise / OEM and specific U.S. cloud customers amid macroeconomic uncertainties. 

Due to Covid shutdowns in China, Asian consumer, client, and cloud business is slow. Since Miller believes these trends will persist at least through the end of this year, he re-rated Western Digital.

The analyst acknowledged continued contract and NAND pricing weakness since Western Digital reported its Q4 results. He again cut his Q1 and FY23 estimates for Western Digital. 

Price Action: WDC shares traded lower by 2.15% at $41.36 on the last check Thursday. STX shares traded lower by 2.85% at $65.05.

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