Micron Technology Inc. executives warned about a semiconductor downturn in late June, but now say that a sharp and sudden drop in demand exceeded even those expectations, suggesting that the current chip glut could get worse.
Executives guided for $4 billion to $4.5 billion in revenue in the current quarter, more than $1 billion lower than analysts expectations, and suggested that they could post a loss in the quarter even on an adjusted basis.
Micron Chief Financial Officer Mark Murphy told analysts on a conference call that macroeconomic uncertainty is high and visibility is low. He predicted that the company's inventories will continue to rise further from their high levels in the first half of fiscal 2023.
Micron reports earlier than other semiconductor companies because of its unusual fiscal year, which ended on Sept. 1, so it can be a harbinger of what is going to come throughout the coming earnings season. After Micron executives admitted three months ago that the Pandemic-era chips party was over, other semiconductor companies such as Intel Corp. INTC and Nvidia Corp. NVDA disappointed investors with later results.
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Micron's data-center business could be a similar doomsayer this quarter. The data center was expected to hold up due to the strength in cloud computing, although a downturn in chips for PCs and phones was expected as sales fell after a huge boom during the Pandemic. Micron reported that data-center revenue was down sequentially and year over year, mainly due to lower average selling prices.
The declines in PC and phones were sharper than in the previous quarter.
Even though Wall Street had been warned by Micron that business was slowing down, the news on Thursday was a surprise admission that the downturn hit the company faster than anticipated. Micron shares were taking the news in stride after an initial drop, and ended up trading in positive territory after-hours trading.
Wall Street was somewhat prepared for a disappointing result from Micron. In a note to clients on Monday, wedbush Securities analyst Matt Bryson wrote: When Micron guided FQ 4 initially, it appeared as if management was assuming a worst-case scenario. Their guide was probably not conservative enough in retrospect. In his note to clients, Bryson warned that the data center remains a key concern going forward. He wrote that he believes that there are headwinds ahead in the data-center business and that we are a bit unclear as to how much of this shift is tied to constraints of necessary components and weaker server requirements.
Three months ago : The chip boom is over, as Micron says it is in a downturn Micron executives tried to put a positive spin on the future, noting that the company has a strong balance sheet and that it and the rest of the industry are taking prudent actions to manage supply growth. They also pointed out that the pricing environment was getting aggressive and industry profitability for memory chips was going to be challenging in 2023.
After the pandemic shortage turned into a glut, investors were already aware that the environment had changed for chip companies, just as demand started to drop off. Like last quarter, the question of the magnitude of the semiconductor downturn remains. Micron's outlook and report suggest that it could still be much deeper than current forecasts.