Micron forecasts Q4 earnings below expectations and raises chip-down cycle concerns

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Memory chip maker Micron Technology announced a much weaker-than-expected business outlook on Thursday, raising concerns the industry is entering a down cycle after nearly two years of strong demand.

Micron is forecasting adjusted sales of US$7.2 billion (nearly Rs.56,800 billion) plus or minus US$400 million (nearly Rs.3,200 billion) for the current quarter, while Wall Street’s forecast is according to Refinitiv IBES- data averaged $9.05 billion.

“We believe demand has weakened significantly, and we’ve seen it even in those areas that have been significantly constrained,” said Nikolay Todorov, an analyst at Longbow Research. “Micron will essentially start or signal that the semiconductor cycle is turning.”

Shares of the Boise, Idaho-based company initially fell 6.3 percent in extended trading but later pared some losses. Summit Insights Group analyst Kinngai Chan said the stock has held up as some investors see it as the bottom of the cycle. “However, we believe there is greater downside risk to earnings as our industry reviews point to possible further industry price pressures into 1H23,” he said.

While Micron executives were confident about the long-term demand for their chips, they crouched down a hard road by reducing the amount of chips they make to secure chip prices. While Micron didn’t provide numbers, it said it will reduce spending on chip manufacturing in fiscal 2023, which begins in September.

“I think the magnitude of the shift was definitely greater than anyone in the ecosystem anticipated,” Sumit Sadana, Micron’s chief business officer, told Reuters. “These changes are now permeating the ecosystem.”

Sadana said during the conference call that the lockdown in China resulted in a 30 percent drop in Micron’s China revenue in the current quarter and a 10 percent drop in overall revenue.

The outlook for memory chipmakers has deteriorated in recent months as rising inflation, the slowing Chinese economy and the Russia-Ukraine war hurt consumer spending on smartphones and PCs, a crucial market for the industry. Sadana said demand for this segment is worse than expected.

That has pushed chip prices down and led to a build-up in inventories, with research firm TrendForce estimating a 3% to 8% drop in DRAM chip prices in the third quarter of 2022.

Sadana said Micron will stock some of the chips it has already produced instead of bringing them to market and make up for any supply shortages that might arise if chip production is scaled back.

“We don’t mind holding this inventory and it will allow us to just drive better pricing discipline in the market,” Sadana told Reuters.

DRAM chips, which are 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 that serve the data storage market.

The company expects adjusted earnings of $1.63 (nearly Rs.130) per share for the quarter, plus or minus 20 cents, compared to estimates of $2.57 (nearly Rs.200) per share.

© Thomson Reuters 2022

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Micron forecasts Q4 earnings below expectations and raises chip-down cycle concerns


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