The Semiconductor Market Is Looking Weak, CLSA Warns

• Micron Technology, Inc. (NASDAQ: MU) shot more than 10 percent higher after reporting that it bought Tidal Systems to develop controllers for SSDs.
• CLSA's Sanjeev Rana said in a new research note that the outlook for the DRAM market would remain weak, with "pricing to remain under pressure."
• Given that backdrop, Micron's acquisition of Tidal Systems might be a way for the company to create efficiencies by moving production of SSDs internally.

Micron Technology had a strong start to trading in the first full week in October, gaining more than 10 percent after the company announced it would acquire Tidal Systems and develop SSD controllers. SSDs are a component of Micron's DRAM and NAND memory. Buying Tidal Systems will allow the company to produce those component parts in-house, instead of relying on outsourced partners. The company hopes it will provide efficiencies.

However, the overall market for DRAM memory is going to be subdued for some time, according to CLSA's Sanjeev Rana. In a note, the analyst said that "memory prices will remain weak in the near term" due to poor demand, high inventory and an increasing supply. That could last two to three quarters, Rana suggested.

Even in the red-hot mobile space, CLSA said that it expected demand for DRAM to decline again in the fourth quarter, which could match 8 percent quarter-over-quarter declines in Q3. DRAM parts in the server segment could decline as much as 15 percent again in Q4.

In 2016, Rana forecasted that NAND demand would also fall below supply – a factor that could see prices drop 30 percent in 2016. That follows price declines of 25 percent in 2015.

CLSA has an Outperform rating on Micron, with a $17 target price.