Shares of the computer chipmaker Micron Technology Inc. are trading lower today after it warned that its fiscal fourth-quarter earnings and revenue will likely fall some distance short of Wall Street’s estimates.
Analysts had already been expecting a soft forecast, but the severity of Micron’s miss was likely to have shocked investors. Indeed, the company warned of a sharp slowdown in consumer tech spending that could yet have ramifications for many other firms.
Micron reported third-quarter net income of $2.63 billion, with earnings before certain costs such as stock compensation coming to $2.59 per share, ahead of Wall Street’s forecast of $2.44 per share. Revenue for the period came to $8.64 billion, just beating the consensus estimate of $8.63 billion.
However, the earnings beat was soon overshadowed by Micron’s weak fourth-quarter guidance. The chipmaker said it expects earnings of $1.63 per share on sales of $7.2 billion for the quarter. Wall Street had been looking for much stronger earnings of $2.62 per share on revenue of $9.1 billion. Despite the bad news, Micron’s stock held up fairly well, down 2% in the extended trading session at the time of writing.
Micron Chief Executive Sanjay Mehrotra (pictured) said in a statement that the company delivered record third-quarter revenue thanks to its team’s excellent execution across technology, products and manufacturing.
“Recently, the industry demand environment has weakened, and we are taking action to moderate our supply growth in fiscal 2023,” he added. “We are confident about the long-term secular demand for memory and storage and are well-positioned to deliver strong cross-cycle financial performance.”
Micron specializes in dynamic random-access memory and NAND flash memory chips. DRAM is the kind of memory that’s commonly used in personal computers and servers, while NAND is the flash memory that’s found in smaller devices such as smartphones and USD drives. Memory chips were in big demand throughout the worst months of the COVID-19 pandemic and prices climbed higher, but these days analysts see demand for the products beginning to wane.
In a conference call with analysts, Mehrotra said the company sees softening demand for both PCs and smartphones on the consumer side. Micron believes calendar 2022 PC sales will dip by about 10% from the previous year, he explained, with smartphone sales down by the “mid-single digits.”
“Our expectations for calendar 2022 industry bit demand growth have moderated since our last earnings call,” Mehotra told analysts. “Near the end of fiscal quarter three, we saw a significant reduction in near-term industry bit demand, primarily attributable to end demand weakness in consumer markets, including PC and smartphone. These consumer markets have been impacted by the weakness in consumer spending in China, the Russia-Ukraine war and rising inflation around the world.”
Micron’s forecast is in line with those of third-party analysts. Earlier today, Gartner Inc. said it expects global smartphone sales to fall by about 7% this year, with PC sales to drop by about 9%.
Holger Mueller of Constellation Research Inc. told SiliconANGLE that the party is ending for chipmakers. He explained that the chipmaking industry is a roller-coaster characterized by regular ups and downs, and that it looks as if the pandemic-related peak has already been reached.
“The next round of earnings from other chipmakers will show if this is specifically related to Micron or more representative of an overall slowdown in the market,” he added. “But it seems the extra boost from the pandemic is fizzling out, with the world appearing to be sliding into a recession. The good news is that Micron has prepared for these rainy days, being conservative on its costs and increasing its profitability. That should put it in a better spot during a recession than some of its competitors.”
Mehrotra also spoke of the ongoing COVID-19 control measures in China that have exacerbated the supply chain challenges it’s facing. In addition, he said, the macroeconomic environment is creating caution among some of the chipmaker’s customers. “Several customers, primarily in PC and smartphone, are adjusting their inventories, and we expect these adjustments to take place mostly in the second half of calendar 2022.”
While any one of these factors could have thrown things off, the fact is they’re all happening at the same time, said Charles King of Pund-IT Inc. “Throw them all together and the result is that consumers, businesses, suppliers and entire markets are keeping their heads down while they hope for the best and plan for the worst,” he continued. “Micron may be an early canary in this particular coal mine but I doubt it will be the last.”
Patrick Moorhead of Moor Insights & Strategy said the lower forecast had nothing to do with Micron’s execution or target markets, but rather was the result of a macro event. “Consumer device makers are taking a conservative views on supply chain in anticipation of a recession-inspired decline in sales,” he said.
The chipmaker said that because of the worsening market conditions, it will be slowing down its expansion plans, with fiscal 2023 spending on wafer fab equipment likely to decline from the current year.
Show your support for our mission by joining our Cube Club and Cube Event Community of experts. Join the community that includes Amazon Web Services and Amazon.com CEO Andy Jassy, Dell Technologies founder and CEO Michael Dell, Intel CEO Pat Gelsinger and many more luminaries and experts.