Micron's weak outlook sparks concerns of chip down cycle

MICRON Technology projected fourth-quarter revenue and profit below market estimates on Thursday (Jun 30), a sign that geopolitical turmoil and weakness in consumer spending would weigh on demand for its memory chips.

Shares of the Boise, Idaho-based company initially fell 6.3 per cent in extended trading but later pared losses to trade flat. The weak outlook could raise broader concern the chip market is heading into a down cycle after a recent shortage.

Micron forecast adjusted revenue for the current quarter at US$7.2 billion, plus or minus US$400 million. Analysts on average expected a figure of US$9.05 billion, according to Refinitiv IBES data.

"We believe that demand has weakened considerably and we've seen that even in the areas that have been significantly constrained," Nikolay Todorov, an analyst at Longbow Research, said. "Micron will essentially start or signal that the semiconductor cycle is turning."

The outlook for memory chip makers has worsened in recent months as surging inflation, China's cooling economy and the Russia-Ukraine war hit consumer spending on smartphones and personal computers, a crucial market for the industry.

That has driven down chip prices and led to a buildup of inventories, with research firm TrendForce estimating a 3 per cent to 8 per cent drop in prices of DRAM chips during the third quarter of 2022.

SEE ALSO

Singapore stocks open higher on Tuesday, STI up 0.1%

DECODING ASIA

Navigate Asia in
a new global order

Get the insights delivered to your inbox.

"Recently, the industry demand environment has weakened, and we are taking action to moderate our supply growth in fiscal 2023," said Micron chief executive Sanjay Mehrotra in the earnings release. "We are confident about the long-term secular demand for memory and storage and are well positioned to deliver strong cross-cycle financial performance."

DRAM chips - widely used in data centres, personal computers and other devices - account for two-thirds of Micron's revenue, and the company also makes NAND memory chips that serve the data storage market.

The company expects adjusted profit for the quarter of US$1.63 per share, plus or minus 20 US cents, compared with estimates of US$2.57 per share. REUTERS