Shares of Micron (MU) are falling after the company reported "solid" fourth-quarter results, but missed expectations for its Q1 guidance and company executives said U.S. tariffs on China goods would impact its financial results for as much as one year.

EARNINGS AND GUIDANCE: On Thursday after the market close, Micron reported Q4 earnings per share of $3.53 on revenue of $8.44B, which compared to analyst estimates of $3.34 and $8.25B, respectively. Micron also guided to Q1 EPS of $2.95, plus or minus 7c, on revenue in the range of $7.9B-$8.3B. This compares to analyst estimates of $3.06 and $8.44B, respectively. The company said on its earnings conference call that its gross margins will be impacted in the near term by the announced 10% tariff on $200B of imports from China, which will go into effect on September 24. CFO David Zinsner commented that "Clearly, tariffs are impacting us, probably to the tune of 50 to 100 basis points...We are working on steps to mitigate that. That obviously takes some time." "We are working to gradually mitigate most of the impact from these tariffs over the next three to four quarters", Micron added.

ANALYST REACTIONS: On Thursday, Evercore ISI analyst C.J. Muse lowered his price target on Micron to $80 from $100, saying that while the softening demand from hyperscale customers was a known headwind, the "negative implications" of tariffs and Intel (INTC) CPU shortages were a new development. The analyst also cites "very little commentary" from the company related to the expected duration of the cloud inventory adjustment. Muse expects softness in the DRAM prices to possibly persist through 2Q19 when the slowdown in pricing will decelerate. On Friday, Morgan Stanley analyst Joseph Moore said he was surprised at the magnitude of the upside Micron reported, but it guided revenues to be down in the strongest seasonal quarter validating some of his recent concerns. While demand factors such as Intel shortages and a few limited inventory adjustments seem "narrow and temporary," the industry "almost certainly will" build inventory in the strongest seasonal quarter, which will have the effect of adding to supply for the seasonally weaker period in early 2019, contended Moore. While there remains debate about what cyclical concerns are already priced in, "this is how memory downturns begin," he said. Moore kept an Equal Weight rating on Micron shares and lowered his price target to $48 from $65. Meanwhile, JPMorgan analyst Harlan Sur views the company's guidance as conservative, saying management has consistently delivered financial results above the midpoint of guidance or above the guided range over the past few years. Further, Sur expects broader supply/demand memory fundamentals to remain in relative balance and believes demand for memory will remain "strong and broad-based". The analyst lowered his price target for Micron shares to $75 from $84 and kept an Overweight rating on the name. In addition, Deutsche Bank analyst Sidney Ho said that while the company reported "solid" results, its guidance missed expectations for the first time in two years. The outlook came with a few negative surprises, namely inventory adjustments, CPU shortages and tariffs on imported goods from China, Ho said. The analyst expects Micron shares to "remain choppy given no clear winner between the bulls and bears". However, at the current valuation, Ho views Micron's risk/reward as favorable.

PRICE ACTION: Micron dropped 3.5% to $44.48 in late morning trading.