Micron cuts revenue forecast, warns of negative cash flow

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Micron cuts revenue forecast, warns of negative cash flow

Micron Technology has cut its revenue forecast on Tuesday, and warned of a negative free cash flow in the coming three months, as customer inventories increase due to waning demand for chips used in PCs and smartphones.

The dismal forecast came a day after Nvidia warned of weakness in its gaming business, accentuating fears of the first chip industry downturn since 2019.

Micron's shares and the Philadelphia SE Semiconductor index fell by 5.7 per cent and 4.3 per cent as investors looked past US President Joe Biden signing a landmark bill for $52.7 billion in subsidies for semiconductor production and research. Micron Chief Executive Sanjay Mehrotra was among the attendees at the signing.

Micron also announced a US $40 billion investment in memory chip manufacturing in the United States, but said capital expenditure was expected to decrease in fiscal 2023 from 2022.

Fourth-quarter revenue is likely to come in at or below the low end of the company's forecast. Its earlier range of US $6.8 billion to US $7.6 billion had fallen short of Wall Street targets in June.

Micron, which last reported negative free cash flow in 2020 during the early days of the epidemic, warned that it could see significant declines in revenue and margins in its first quarter due to a fall in shipments.

In anticipation of strong post-pandemic demand, production revaluations of companies sitting on excess stock of chips and other components have been caused by a surge in prices of electronic gadgets.

According to Gartner, shipment of PCs is expected to drop 9.5 per cent this year. That, and cooling demand for smartphones, has drawn demand-related warnings from Micron and others, including Intel, Advanced Micro Devices, Qualcomm and Nvidia Corp.

Finance chief Mark Murphy said at the Keybanc Technology Leadership forum that Micron is seeing cloud, industrial and automotive customers make inventory adjustments due to macro uncertainty.

It's a challenging setup for this quarter.