Micron Technology Inc. gave an unexpectedly negative forecast for the current quarter because demand for phones and computers has dropped. However, the company promised to act quickly to prevent a chip glut.
The company, which is the largest US maker of memory semiconductors, said that sales in its fiscal fourth quarter will be about $7.2 billion, which is a lot less than the $9.14 billion that analysts expected. The company said that if certain things are taken out, the profit per share will be about $1.63. This is less than the $2.57 that analysts had predicted.
The outlook overshadowed the generally good results from the last quarter and brought back worries about a slowdown in the computer and smartphone markets, which are two of Micron’s most important markets for memory chips. People and businesses have been spending less because they are afraid that the major economies of the world will go into a recession.
In an interview, Chief Executive Officer Sanjay Mehrotra said, “The world is rapidly changing and uncertain, and consumer spending is definitely shifting away from electronic devices.” “Look at us! We just had a record-setting quarter, and we’re so quick to act to make sure we have enough total supply to meet demand. This has never happened this quickly in this business before.”
After the report, Micron’s shares fell by more than 8% in extended trading, but then they went back up to fall by about 3%. By the end of the day, they had already lost 41% of their value this year. This was part of a rout for semiconductor stocks, which had been going up for the last five years.
On a conference call, Mehrotra and his top managers told analysts that they are cutting spending on new plants and equipment to slow the growth of factory output. Electronic device makers, who are the company’s customers, are cutting back on orders to get rid of their stock.
In the past, similar actions have usually taken two quarters to finish, and Mehrotra said that Micron is expecting a rise in orders “sometime in fiscal year 2023.” For the chipmaker, this time period starts in September.
During the call, Micron’s leaders stressed that the company is moving quickly to make sure that the drop in demand doesn’t lead to a glut in the market. Mehrotra said in the interview that Micron can lessen the effect on its earnings by using up its existing stockpiles, slowing the rate of production increases, and cancelling orders when customers ask for steep price cuts.
Investors were worried that the memory chip business would go through another boom-and-bust cycle, but the action plan gave them peace of mind. Micron and its competitors have a history of making too many chips when times are good. This leads to hard times when the companies have to use up their cash reserves.
Micron’s sales grew by 16 percent in the three months that ended on June 2. This was the smallest increase in more than a year. Net income was $2.63 billion, or $2.34 per share. Analysts predicted about the same amount of profit and sales.
The CEO of Micron said, “There is no doubt that the long-term trends are good for memory and storage.” “The industry will go through cycles, but the core of the industry will keep getting stronger as the cycles go by.”
Micron’s memory chips are an important part of many electronic devices, and their importance has grown as the amount of data created has grown. And Mehrotra has said that if this trend keeps going, more money will flow to its type of chips.
The US company competes with Samsung Electronics Co., SK Hynix Inc., and Kioxia Holdings Corp. from South Korea, as well as Kioxia Holdings Corp. from Japan, in a market that has always been dangerous and hard to predict. Many of their products are sold as interchangeable commodities, whose prices can change quickly and sometimes go down below what it costs to make them.
Memory chips come in two main types. The DRAM type temporarily stores information, which helps processors crunch numbers. Nand flash memory, on the other hand, is used in phones and computers as permanent storage. In both types of chips, Micron, which is based in Boise, Idaho, is a smaller competitor to Samsung, which is based in South Korea and is the market leader.