Almost every analyst on Wall Street knew that the memory chip company
The technology was likely to provide quarterly guidance below the Street’s previous estimates.
And that’s exactly what happened. Micron’s revenue outlook for the August quarter was nearly $2 billion below the old consensus level.
Shares of Micron traded sharply lower on Friday, falling 6% to $52.02 after hitting a 52-week low earlier in the session. The stock’s decline caused big declines in chip and semiconductor equipment stocks — apparently, the outlook was even worse than expected.
For the August quarter, Micron is forecasting revenue of $7.2 billion, with non-GAAP earnings of $1.63 per share. The Street was looking for revenue of $9.1 billion and non-GAAP earnings of $2.62 per share. The company cited declining PC and smartphone sales as the main problem. Micron now sees global calendar 2022 PC units down 10% from 2021. They previously expected flat sales. For smartphones, Micron now sees unit sales down in the mid-single digits. Their old view called for a percentage increase in the mid-single digits.
Specifically, the company cited much weaker-than-expected consumer demand in China — Micron Chief Business Officer Sumit Sadana said in an interview that Micron’s revised outlook for August-quarter shipments in China is down 30% from its forecast just one quarter earlier.
Micron’s stark warning has sparked widespread selling in other chip and equipment stocks, with
the widely watched semiconductor index, down 4.6%. Among other large-cap chip stocks,
sophisticated micro devices
(NVDA) fell about 4%. The contract chip maker
(TSM) is down 6%, while
(WDC), which competes with Micron in flash memory, is off 6.5%
Equipment stocks fall even harder on Micron’s comments about reduced equipment capital spending plans, with
(AMAT) and ASML (ASML) 6% discount,
(KLAC) down 7% and
almost 8% lower.
Also trading are computer makers Dell Technologies (DELL), with a 7% discount and
(HPQ), down nearly 4%.
For some Wall Street analysts, the reduced guidance signals a tougher outlook more broadly among technology companies.
Analyst Christopher Danely, who covers Micron and other chip stocks, claims this is likely to be “the first of many companies to cut guidance in the coming quarters.”
Wall Street also offered mixed comments on the outlook for data center applications. While Micron said demand remains strong, Sadana also noted that corporate customer inventories are above pre-Covid levels – any shift by customers to moderate spending due to a possible recession could cause inventories to decline, which could to affect demand.
BoA Global Research analyst Vivek Arya responded to the earnings report by cutting his rating on Micron shares to Neutral from Buy, while lowering his price target to $62 from $70. While the stock’s valuation remains low, Arya writes that a fundamental recovery in growth may not arrive until much before calendar 2023. Specifically, he notes that “yellow flags” are emerging from cloud and enterprise customers.
Barclays analyst Tom O’Malley takes a similar view. Despite soft guidance for the August quarter, Micron “has yet to fully pay the pipeline on the demand side,” with the data center still seeing some weakness, he wrote in a research note.
“We believe consumer markets are weakening further and there are already signs of a slowdown in the server market that will lead to additional cuts,” writes O’Malley, who still has an Overweight rating on Micron.
Micron is also shifting to a more conservative stance on adding capacity and now expects spending on wafer equipment in August 2023 to drop from the roughly $12 billion it expected to spend in fiscal 2022. (Sadana declined to provide more accurate prediction.)
Citi semi-equipment analyst Atif Malik maintains his forecast of $80 billion in global wafer fab spending in 2023, which would be down 16% from the 2022 estimate of $95 billion. In the coming months, he expects “broad capital reduction announcements” from memory chip companies and second-tier foundries and delays at top-tier foundries.
However, there are some upsides for Micron investors. First, the company bought back nearly $1 billion of stock in the May quarter and promised to be more aggressive in share repurchases in the August quarter. And some analysts pointed out that the stock is now trading just a hair above book value, providing some downside protection for investors.
Write to Eric J. Savitz at firstname.lastname@example.org