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Micron misses estimates as chip glut hurts prices

It reports estimated revenue of US$5.7b-US$6.3b for its FYQ2 compared to analysts' US$7.3b

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Shares of the Boise, Idaho-based company fell as much as 8.5% after the forecast, before paring losses to 2.8%.

San Francisco

US CHIPMAKER Micron Technology Inc gave on Tuesday quarterly sales and profit forecasts well below Wall Street estimates, citing a market glut of memory chips as consumer and business demand for phones and computers weakens.

Micron said it expected industry output, including from South Korean rivals Samsung Electronics Co Ltd and SK Hynix, to outstrip demand from the makers of phones, PCs and servers, pushing down Micron chip prices.

Samsung had already warned of a slowdown in demand and drop in chip prices, flagging an end to a two-year boom in memory chips as global demand for mobile and other electronics devices wanes and fresh supplies from Hynix and Toshiba Corp hit the market. Hynix has also offered a downbeat outlook.

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Micron chief executive Sanjay Mehrotra told investors on a conference call on Tuesday that the company was taking "decisive actions in terms of reducing our production output" to hold the line on prices. "We are always reviewing how to best align our output with market demand to focus on delivering healthy profitability," Mr Mehrotra said in an interview.

But the glut will hammer Micron in the short term, with the company estimating revenue of US$5.7 billion to US$6.3 billion for its fiscal second quarter and gross margins of 50 to 53 per cent, compared to analysts' estimates of US$7.3 billion and 55 per cent, according to data from Refinitiv.

Shares of the Boise, Idaho-based company fell as much as 8.5 per cent in extended trading after the forecast, before paring losses to 2.8 per cent. Asked about Micron's comments, Hynix told Reuters that in the short term, the memory chip sector would struggle through a period of relatively low growth due to weak demand in the smartphone and PC markets, but the outlook would brighten in the long term.

Hynix shares were down 1.6 per cent in late morning trading in South Korea. Samsung shares were up slightly. "The worse may not be over yet if the end-market demand weakens further," said analyst Kinngai Chan of Summit Insights Group. Micron is responding to the oversupply of DRAM and NAND memory chips by investing more in its next generation of chips. Major suppliers to smartphone makers such as Apple Inc have lowered their sales forecasts, citing weak demand from device makers.

Data centres, which have been a boon for Micron as cloud computing providers such as Amazon.com's Amazon Web Services have become massive businesses, were a weak spot in Micron's earnings. On the post-earnings call, Mr Mehrotra cited "inventory adjustments" at data centres for the pressure on revenue.

Several chipmakers have cited strong demand in the months before US tariffs were imposed on some Chinese goods, leaving analysts wondering if data centre owners had tried to get in orders ahead of the levies.

"We expect this headwind will persist for a couple of quarters. We are seeing some cloud customers go through a digestion period following very strong growth over the last two years," Mr Mehrotra said.

Stifel analyst Kevin Cassidy said Micron was making the right move by slashing output instead of cutting prices to gain market share as it had in the past. "We see today's announcements as prioritising profitability over market share gains," he said.

Micron's gross margin was 59 per cent for the fiscal first quarter, and executives said US tariffs on Chinese goods cut its gross margins by about half a percentage point, at the lower end of the negative impact, it told investors in September.

Micron is ahead of schedule in addressing the expected impact of US tariffs on its products, Manish Bhatia, Micron's executive vice-president of global operations, said in an interview.

"We made very good progress across multiple sites in our (factory) network taking the products that were being made in China and destined for the United States and quickly transferring them to other sites outside of China," he said.

Net sales rose 16 per cent to US$7.91 billion, short of analysts' expectations of US$8.02 billion.

Excluding items, Micron earned US$2.97 per share, narrowly beating the analyst average estimate of US$2.96, according to I/B/E/S data from Refinitiv. REUTERS