Micron Technology Inc., the leading US manufacturer of computer memory chips, experienced a significant stock decline after releasing a second-quarter revenue forecast that fell short of analyst expectations. This downturn reflects the current sluggish demand in the smartphone and personal computer markets.
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Micron projected sales of approximately $7.9 billion for the fiscal second quarter, ending in February. This figure is considerably lower than the average analyst estimate of $8.99 billion. Furthermore, the company anticipates profit to be no more than $1.53 per share, excluding certain items, significantly below the projected $1.92.
While Micron has observed robust orders for components utilized in artificial intelligence computing, the company continues to grapple with weak demand from phone and PC manufacturers, which account for a substantial portion of its chip sales volume. Following the announcement, Micron shares plummeted as much as 17% to $86.13 in early New York trading, marking the steepest intraday decline since March 2020.
AI Demand Strong, But Consumer Markets Remain Weak
Despite the disappointing forecast, Micron CEO Sanjay Mehrotra expressed optimism about future growth. “While consumer-oriented markets are weaker in the near term, we anticipate a return to growth in the second half of our fiscal year,” he stated.
In the first fiscal quarter, ending November 28, Micron reported an 84% surge in sales to $8.71 billion, with earnings per share of $1.79, excluding certain items. These results aligned with analyst predictions. Notably, data center-related revenue experienced a remarkable 400% year-over-year increase, now representing over half of the company’s total sales.
However, this substantial growth was insufficient to offset the impact of weak orders from consumer device manufacturers, who are currently working through excess inventory. Micron acknowledged a “more pronounced impact of customer inventory reductions” and expects this adjustment period to be relatively short-lived, anticipating healthier inventory levels by spring.
Inventory Adjustments and Market Outlook
Micron projects a modest 5% growth in the PC market for 2025, primarily in the latter half of the year. The company noted that device owners are delaying upgrades longer than anticipated. The mobile business unit faced a 19% sequential decline due to inventory adjustments. Similar declines were observed in automotive and industrial sales.
Looking ahead to fiscal 2025, Micron has allocated $14 billion for new plant and equipment expenditures, which includes a reduction in planned spending for new storage chip production.
High-Bandwidth Memory Offers Hope for Sustained Growth
The memory chip industry, known for its cyclical nature, is pinning its hopes on sustained demand for high-bandwidth memory (HBM). This technology, crucial for AI computing systems, allows manufacturers like Micron to charge premium prices, despite its complex production and deployment. While other memory types remain susceptible to price fluctuations based on supply and demand, the leading memory companies – Micron, SK Hynix Inc., and Samsung Electronics Co. – have exercised greater restraint in expanding production. This disciplined approach aims to mitigate the severity of future inventory gluts. Just in 2023, Micron reported substantial net losses when prices plummeted below production costs.
Micron produces dynamic random access memory (DRAM), a type of chip that temporarily stores information and functions alongside processors from industry giants like Nvidia, Intel Corp., and Advanced Micro Devices Inc. The company also manufactures Nand flash memory, a non-volatile memory used in a wide range of devices, from data center computers to smartphones.
Conclusion: Navigating Short-Term Challenges, Eyeing Long-Term Growth
Micron’s recent revenue forecast miss and subsequent stock decline highlight the challenges posed by weak demand in the consumer electronics market. However, the company’s strong performance in the AI sector and its optimistic outlook for future growth suggest a potential rebound. The strategic focus on high-bandwidth memory and disciplined production management could pave the way for sustained growth in the long term. While the near-term outlook presents challenges, Micron appears well-positioned to capitalize on emerging opportunities in the evolving memory chip landscape.
