Memory chip maker Micron Technology posted a significantly weaker-than-expected business outlook on Thursday, stoking fears that after nearly two years of strong demand, the industry is turning to reduction cycle.
Micron adjusted revenue forecast for the current quarter at $7.2 billion (nearly Rs 56,800), plus or minus $400 million (nearly Rs 3,200), while Wall Street’s outlook is an average of $9.05 billion USD, according to Refinitiv IBES data.
“We believe demand has weakened significantly and we see that even in regions that have been significantly limited,” said Nikolay Todorov, analyst at Longbow Research. Longbow Research, said.
Shares of Boise, the Idaho-based company, initially fell 6.3% in extended trading but later pared some losses. Summit Insights Group analyst Kinngai Chan said stocks are rising as some investors see this as a cycle bottom. “However, we believe there is more downside risk to earnings as our industry tests suggest there could be further price pressure in the industry through the first half of 23,” he said.
While Micron executives are confident about demand for their chips in the long term, they are looking for the tough road ahead by cutting down on the number of chips they produce to keep chip prices in check. Although Micron did not provide any numbers, it said it will reduce spending on chip production in fiscal year 2023 starting in September.
“I think the magnitude of change is definitely bigger than anyone anticipated in the ecosystem,” Micron’s chief business officer, Sumit Sadana, told Reuters. “These changes are now pervasive in the ecosystem.”
Sadana said during the earnings call that the China shutdown is causing Micron’s revenue in China to drop 30% in the current quarter and total revenue down 10%.
The outlook for memory chip makers has soured in recent months as inflation rises, the Chinese economy cools and the Russia-Ukraine war hits consumer spending on electricity. smartphones and personal computers, an important market for the industry. Sadana said demand for that segment was weaker than expected.
That has reduced Chips prices and lead to inventory build-up, with research firm TrendForce estimating a 3% to 8% decline in prices of Chip DRAM in the third quarter of 2022.
Sadana said Micron will keep a portion of the chips it has produced in stock instead of releasing them to market and fill in any supply shortages that may occur as it cuts chip production.
“We don’t mind holding this inventory and it will allow us to promote better pricing discipline in the market,” Sadana told Reuters.
DRAM chips – widely used in data centers, personal computers and other devices – account for two-thirds of Micron’s sales, and the company also makes NAND memory chips for the data storage market. .
The company expects adjusted profit for the quarter of $1.63 (nearly Rs. 130) per share, plus or minus 20 cents, compared with an estimate of $2.57 (nearly Rs 200. .) Per share.
© Thomson Reuters 2022
