Micron Technology Inc. saw a drop in its shares after announcing a more significant loss than expected in the current quarter. This suggests that an industry slump is still affecting the largest US maker of memory chips.
Micron predicted a loss of up to $1.14 per share, excluding some items, for the first quarter of the fiscal year. This is higher than the estimated loss of 96 cents. However, the company expects revenue to begin to recover in the same quarter, with sales of $4.2 billion to $4.6 billion. This is compared to an estimated $4.21 billion.
2023 has been a challenging year for Micron and its rivals, Samsung Electronics Co. and SK Hynix Inc. Customers in their primary markets, including personal computers and smartphones, have reduced orders due to sluggish demand and excess parts. The latest report suggests that investor confidence in the profitability of the memory chip industry may have been misplaced.
Micron Technology Inc.’s stock price fell after the company predicted a larger loss than expected in the current quarter, suggesting that an industry slump is still affecting the largest US maker of memory chips.
Micron Predicts Larger Loss Than Expected
Micron predicted a loss of up to $1.14 per share, excluding some items, for the first quarter of the fiscal year. This is higher than the estimated loss of 96 cents. However, the company expects revenue to begin to recover in the same quarter, with sales of $4.2 billion to $4.6 billion. This is compared to an estimated $4.21 billion.
Impact of Industry Slump on Micron
2023 has been a challenging year for Micron and its rivals, Samsung Electronics Co. and SK Hynix Inc. Customers in their primary markets, including personal computers and smartphones, have reduced orders due to sluggish demand and excess parts. The latest report suggests that investor confidence in the profitability of the memory chip industry may have been misplaced.
CEO’s Outlook for Micron
CEO Sanjay Mehrotra stated that his company has taken “decisive actions on supply and cost” that will bolster Micron’s position in the market as the demand for memory chips recovers in 2024. The burden of excess inventory has been lifted, and most customers, except data center server makers, are now ordering products based on demand. In addition, device makers are increasing the amount of memory and storage in their products, which is good news for Micron.
Mehrotra also said that prices for Micron’s products are rising, and the rate of increase is accelerating. “This is how we’ll enter 2024,” he added.
Micron’s Financial Performance
Micron’s sales have fallen for five straight quarters, with revenue declining 40% to $4.01 billion in the three months ending August. The company had a loss of $1.07 per share, excluding certain items. This compares with an estimated loss of $1.18 per share and sales of $3.93 billion.
Challenges Facing Micron
The forecast suggests that sales will begin to grow again in the first quarter of the fiscal year ending in November. However, Beijing’s designation of Micron’s products as a security risk poses an additional challenge, reducing the company’s revenue in China, the largest market for semiconductors.
Micron expects the industry outlook to improve significantly by 2025 as artificial intelligence systems demand more expensive memory chips. For now, the outlook remains mixed. Demand for traditional servers is still lackluster, but both personal computers and smartphones are expected to return to growth next year, with units increasing by a percentage in the low- to mid-single digits.
To cope with the slowdown, Micron and its peers have reduced production, severely reducing supply and stabilizing prices. The company expects to be “significantly” below peak 2022 output for the foreseeable future and plans to continue to operate factories at less than full capacity through calendar 2024. Micron also plans to further reduce spending on new equipment next year.
Micron’s chips are highly susceptible to demand fluctuations, as memory products are interchangeable and traded like commodities. Sudden changes in the supply-demand balance can lead to producers selling the components at a loss, as the selling price may not cover the production cost.
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