After a red-hot 2017 for semiconductor manufacturers, one team of analysts on the Street is back with a warning that as supply accelerates in some areas next year, investors should brace themselves for “mixed” results in the new year.

Morgan Stanley chip analysts Joseph Moore and Craig Hettenbech wrote in a research note this week that while the team has a “negative call on memory” at large, they highlight Micron Technology Inc. (MU), “and to some degree Semicaps, as positive outliers.” (See also: Why the Micron Selloff Is Overdone: Morgan Stanley.)

Two weeks ago, Moore & Co. colleague Katy Huberty downgraded shares of Western Digital Corp. (WDC), Taiwan Semiconductor (TSM) and Samsung Electronics to equal weight, noting that NAND flash memory prices have peaked. While the analyst urged clients to cash in on stocks with large exposure to NAND, she defended Micron as a company that should withstand the negative tailwinds.

Micron in ‘Unique Position’

“Though we are largely in agreements that NAND is likely to weaken we think that Micron’s NAND business is in a unique position to offset this through a combination of NAND cost reduction of more than 30% in the next 12 months, as well as relatively better revenue positioning as the company moves from the highest cost planar process to a competitive second generation 3D process,” wrote Moore and Hettenbech.

As for the rest of semiconductor plays, the Morgan Stanley analysts flagged rising inventories, “at multi-year highs across semis, distributors, and customers.” Further, “speculative double ordering is clearly in evidence,” even if not as bad as in previous years.

On the bright side, Moore and team indicate that demand has been very healthy across most end markets, with other positive growth drivers including artificial intelligence, the Internet of Things (IoT), automation and self-driving cars. As margins continue to improve for chip companies, the general economic outlook remains positive. As a result, chip investors should expect a more “seasonal 2018,” with overall less strength in memory chips alongside a major increase in spending on chip tools. (See also: Credit Suisse Warns on Chipmaker Volatility.)

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