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The slump in demand faced by the electronics industry has intensified this year, mainly due to economic uncertainty, and it has also affected ancillary businesses like semiconductor companies. Poor financial performance from memory chip giant Micron Technology Inc. (NASDAQ: MU) in the early months of fiscal 2023 underscores the severity of the crisis.
Micron’s first quarter report, which was one of the most anticipated announcements of this earnings season, reflected the memory chip market today. Adding to the pessimism, management lowered its guidance and announced a 10% workforce reduction for next year.
Stock Falls
After closing Wednesday’s session lower, Micron shares lost significantly in the full session as first-quarter results led to a selloff. The last time the stock fell below that was about six years ago. It has now lost more than 12 months, and the value is now below the January peak. It is safe to assume that the stock will recover the main part of the losses next year, but the volatility of the chip market requires caution. That said, MU appears to be at a buy point now.
There is no doubt that Micron is a better company than it was a few years ago and continues to dominate the market in DRAM and NAND chips. It is important to note that the current downturn is not company specific. The semiconductor industry moves in a cyclical pattern, and Micron’s unimpressive Q1 performance can be attributed to the seasonal nature of the business to a large extent. Given the demand problems associated with memory chips, Micron’s problems run deeper than the broader semiconductor industry.
Expected vs
Certain chip segments witnessed a collapse in orders; at the same time, demand recovery is sluggish in most areas. A deteriorating pricing environment adds to the problem. While the supply-demand imbalance will remain for the foreseeable future, the inventory position at the customer’s end is gradually improving. However, the recovery is not fast enough to boost Micron’s profits, which may come under pressure during 2023.
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Commenting on the results, Micron CEO Sanjay Mehrotra said, “Longer term, we continue to expect strong demand growth in various end markets, with DRAM bit demand CAGR in the mid-teens percentage range and NAND bit demand CAGR in the mid-20s percentage point. Long-term demand bit growth expectations for DRAM and NAND has declined from expectations earlier this year mainly due to the declining growth expectations of the PC and smartphone market and some moderation in the strong long-term growth in the cloud.
Result of Q1 Miss
This week, Micron reported its first quarterly loss in about six years and its first earnings miss in years. On a per-share basis, adjusted loss was four cents in the first quarter when all four operating segments suffered double-digit contractions. At slightly above $4 billion, total revenue fell 47%. Taking cues from broad-based weakness and a squeeze on cash flow, Micron executives downgraded their near-term outlook.
Continuing its decline, the company’s stock traded down 4% on Thursday afternoon. They have experienced some ups and downs over the past six months, ultimately losing 13% during that time.
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