Micron Technology (MU), a key player in the semiconductor industry, has announced that its second-quarter revenue and profit expectations will fall short of Wall Street’s projections, triggering a significant 16% drop in its stock price during extended trading. This downturn is largely attributed to the persistent weakness in the prices of memory chips, particularly DRAM (Dynamic Random Access Memory), which forms the bulk of Micron’s revenue. The company’s shares, including today’s nosedive, have decreased by over 44% since hitting a record high of $157.54 in June, reflecting broader market challenges due to lackluster consumer demand and an ongoing supply glut.
The DRAM market has been particularly affected, as these chips are integral to devices like data centers, PCs, smartphones, and other computing gadgets. Despite the downturn, Micron is investing in future growth, with plans for a massive 1,400-acre campus in central New York dedicated to DRAM production, indicating a long-term commitment to expanding its manufacturing capabilities.
Global PC shipments have seen a slight decline, with Gartner reporting 62.9 million units shipped in the third quarter of 2024, down by 1.3% from the previous year. This decline, following three consecutive quarters of modest growth, highlights the sluggish demand in the PC market, which continues to fall short of growth expectations. CEO Sanjay Mehrotra has noted that the PC refresh cycle is slower than anticipated, predicting flat to slightly below expected PC unit volume growth for the calendar year 2024. However, he remains hopeful about the future, particularly with the adoption of AI PCs over time.
Financially, Micron’s outlook is less optimistic than analysts had hoped. The company projects an adjusted earnings per share of $1.43, with a possible variance of 10 cents, significantly below the consensus estimate of $1.91 per share. Revenue is expected to be around $7.90 billion, give or take $200 million, which also falls short of the anticipated $8.98 billion.
The situation is compounded by weak demand for PCs and smartphones in major markets like China, leading to an oversupply of memory chips and reduced inventory levels. This environment has not only pressured Micron’s financial performance but also highlights the cyclical nature of the semiconductor industry, where supply and demand imbalances can significantly impact profitability.
In addition to DRAM, Micron also produces NAND flash memory chips, which cater to the data storage market. Although not as severely impacted as DRAM, the NAND market also faces challenges due to similar supply and demand issues.
Overall, Micron’s current forecast reflects the complexities of operating in a highly competitive and volatile market, where strategic investments in manufacturing and technology development are essential against a backdrop of fluctuating consumer demand and technological shifts towards AI integration in computing devices.
Price Action: At last check, Micron shares were trading at $87.68, down $16.22 (15.61%) in after-hours trading. In terms of its 52-week range, MU has fluctuated between a low of $78.63 and a high of $157.54.
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