The tables have turned against Micron Technology (MU -2.33%) in 2018 as signs of oversupply in the memory industry have started spooking investors. The pullback in DRAM (dynamic random access memory) and NAND flash has already begun, and the chipmaker didn't exactly inspire confidence when it issued weak guidance back in September.

Micron looks set to close the year on a low after two scintillating years in 2016 and 2017, when it delivered terrific upside to investors. However, the company has one last chance to sway the momentum in its favor when it releases its fiscal first-quarter results on Dec. 18. But will Micron be able to win back investor confidence with solid results and a robust outlook? 

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Facing an uphill task

Wall Street's expectations are almost in line with Micron's guidance. The company expects earnings of $2.95 per share at the midpoint of its outlook on revenue of $8.1 billion. For comparison, analysts are looking for $2.93 per share in earnings on $8.05 billion in revenue, indicating that the company is on track to beat expectations if it can hit the midpoint of its own guidance range.

Analysts were originally expecting $8.4 billion in revenue from Micron and earnings per share of $3.06, but they dialed that back significantly thanks to the company's muted outlook. The market punished Micron big time for this slip, as the stock has declined nearly 25% since September, when its last set of results came out.

If the memory specialist turns in better-than-expected results this time, there's a possibility that it might regain investor confidence. But the problem is that the end-market scenario is stacked against Micron.

DRAM prices were down 10% in October, while NAND took a steeper dive of 15%. DRAMeXchange, which tracks the memory industry's dynamics, expects DRAM pricing to fall 8% in the fourth quarter of the calendar year because of increasing output. What's more, DRAM prices are expected to drop another 20% in 2019, so not only does Micron have a steep hill to climb in its first-quarter report, but it also faces a challenging outlook.

On the other hand, the NAND flash memory market has seemed to be in an oversupply phase since the beginning of the year. The average selling price of NAND flash memory reportedly fell 10% to 15% during the third quarter as compared to the second quarter, and steeper drops are anticipated going into the new year.

In all, the chances of Micron turning the narrative to its favor when its results are released seem minimal. Does this mean that Micron's party is over, because the company seems to be heading into a difficult 2019? Not necessarily. There are a few catalysts that could help the chipmaker fire up its growth engines once again.

The long-term picture

While it is true that memory chips are a cyclical industry, there's a chance that prices might remain stable in the future because of two factors. Memory demand is expected to rise at an incredibly fast pace thanks to emerging applications including the Internet of Things (IoT), fifth-generation (5G) wireless technology, and artificial intelligence (AI).

One estimate puts the size of the next-generation memory market at $9.7 billion in 2023, up from $2.35 billion last year. Such massive growth will be driven by the data generated from the applications listed above, which must be stored in economical and scalable memory devices that can handle a high bandwidth.

Additionally, the size of smartphone memories is growing, while data centers are moving to solid-state drives (SSDs) as they equip themselves to handle the incoming boom in storage that will require fast read/write times. This is all proof that memory demand will remain strong in the long run.

Another key factor that's going to impact memory prices is supply. Memory industry players such as SK Hynix and Samsung have been planning on adding production capacity by way of multibillion-dollar investments. If that happens, there's a chance that the industry will move into oversupply before the demand catalysts kick in, setting off a price bust that will hurt Micron's margins.

But it looks like the stakeholders are trying to manage their capacity upgrades in order to avoid a price crash. For instance, Samsung and SK Hynix are reportedly delaying their expansion plans so that they don't flood the industry with more supply. Bloomberg goes on to suggest that Samsung could cut back on memory production in order to prevent a glut in the market.

In light of this, it won't be surprising if Micron's forecast turns out to be better than expected based on supply control measures and a potential increase in demand. If that's the case, Micron could move into the new year on solid footing.