Micron Technology Stock Plummets on Bleak Q1 Forecast

Micron Technology Stock Plummets on Bleak Q1 Forecast

Micron Technology stock fell in the after-hours trading Wednesday after forecasting a wider-than-expected loss for the current quarter, indicating that an industry slump still holds its grip on the US memory chip-making giant.

Micron Technology, Inc. (NASDAQ: MU) has projected a fiscal first-quarter loss of up to $1.14 per share, excluding certain items, far exceeding analysts’ estimates of a 96-cent loss. However, there is a glimmer of hope on the revenue front as the company foresees a rebound. Micron expects sales to range between $4.2 billion and $4.6 billion, compared to the estimate of $4.21 billion.

This year has proven exceptionally challenging for Micron and its industry peers, Samsung Electronics Co. and SK Hynix Inc. Year 2023 has seen a relentless onslaught of difficulties, including reduced orders from main markets like personal computers and smartphones, stemming from lackluster demand and excess parts stockpiles. The latest report suggests that investor optimism may be premature regarding a swift rebound in profitability.

In the wake of this news, Micron Technology stock has plummeted about 4% in extended trading, closing at $68.21 in New York, still showing a 36.47% gain for the year.

CEO Sanjay Mehrotra remains optimistic, stating that the company has taken decisive actions to address supply and cost issues. He believes Micron will benefit from the memory chip market’s recovery in 2024, with expectations of reaching record levels in 2025.

Mehrotra also noted that the burden of excess inventory has lifted, and most of Micron’s customers are now placing orders in line with genuine demand, except for data center server manufacturers. Some device makers are also increasing memory and storage in their products, driving up Micron’s prices, a trend expected to continue into 2024.

Sales have witnessed a steady decline for five consecutive quarters. In the three months ended in August, Micron’s revenue plummeted by 40% to $4.01 billion, with a loss of $1.07 per share, excluding certain items. This compares to an estimated loss of $1.18 per share and sales of $3.93 billion.

The forecast indicates a potential return to growth in the fiscal first quarter running through November.

Yet, a significant challenge looms over Micron as Beijing has designated its products as a security risk, impacting the company’s revenue in China, the largest semiconductor market.

Micron remains optimistic about the industry’s outlook for 2025 as artificial intelligence systems drive demand for more advanced and expensive memory chips.

However, the outlook remains mixed for the time being. Demand remains lackluster in traditional servers, while personal computers and smartphones are expected to return to growth next year, albeit with modest single-digit percentage increases.

To adapt to the slowdown, Micron and its peers have curtailed production, significantly reducing supply to stabilize prices. The company anticipates maintaining production levels well below the peak of 2022 for the foreseeable future, with plans to continue running factories below maximum capacity well into 2024. In addition, Micron plans to cut spending on new equipment next year.

Micron chips, vital for storing information in computing devices, are highly susceptible to demand fluctuations due to their interchangeable and commodity-like nature. Rapid shifts in the supply-demand balance can often lead producers to sell their components at prices lower than their production costs.