It’s time to offload shares of Western Digital as the memory industry faces a severe slowdown, according to Goldman Sachs. Analyst Toshiya Hari downgraded the chip stock to sell from neutral in a note to clients Thursday, citing high inventory and slowing demand in the NAND flash memory business. According to Hari, “the ongoing downturn in NAND, and historically low gross margins by extension, could pose risk to WD’s competitive position, particularly as net debt to TTM EBITDA elevates over the coming quarters.” The stock tumbled nearly 6% before the bell Thursday. Along with the downgrade, Hari trimmed estimates and cut the bank’s price target on the stock to $31, implying more than 13% downside from Wednesday’s close. That would come on top of a 45% drop this year. Hari also sees risks to Western Digital’s balance sheet, expecting its net leverage to come under greater scrutiny and potentially “constrain operating activities in the near-term, presenting a risk to WD’s post-cycle competitive position.” In the same note, Hari reiterated Goldman’s buy rating on Micron Technology , citing favorable tailwinds in the dynamic access memory, or DRAM business, which creates chips to store data within memory cells. That stock is down more than 41% this year. “[W]e believe that the risk is to the downside for WD as the imbalance in NAND supply-demand that currently exists, coupled with a moderate negative economic revision, has the potential to produce a protracted recovery in pricing, which will ultimately constrain strategic objectives and depress the company’s competitiveness relative to peers,” Hari wrote. — CNBC’s Michael Bloom contributed reporting
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