Micron Technology Inc. (MU), the leading U.S. producer of memory chips, is bracing for a significant drop in its share price, its biggest in more than four years, after revealing a revenue forecast for the fiscal second quarter that fell short of expectations. The company projected sales of approximately $7.9 billion, contrasting sharply with the analyst consensus of $8.98 billion. This forecast reflects the challenges Micron faces with weak demand in the smartphone and personal computer sectors, which are major consumers of its chips.
Despite a robust performance in the artificial intelligence (AI) segment, where demand for high-bandwidth memory (HBM) components is soaring, the overall market conditions have not been favorable. In the fiscal first quarter ending November 28, Micron’s sales did increase by 84% to $8.71 billion, and profit, excluding certain items, hit $1.79 per share, aligning with analyst predictions. However, this growth was primarily driven by a sequential revenue increase of over 40% and a year-over-year surge of more than 400% in data center-related revenue, which now accounts for more than half of Micron’s total sales.
The discrepancy between the thriving AI sector and the slumping consumer markets highlights the volatile nature of the memory chip industry. Micron noted that consumer markets, particularly smartphones and PCs, are currently dealing with an inventory glut, leading to reduced orders. This adjustment in inventory levels is expected to be short-lived, with Micron anticipating that by spring, customer inventories will stabilize, and demand might recover.
The company’s shares, which had enjoyed a 22% rise year-to-date, faced a drastic after hours drop of 16% following the announcement, again, signaling potential for the largest single-day decline since March 2020 if the trend holds. CEO Sanjay Mehrotra expressed optimism about a market recovery in the latter half of the fiscal year, suggesting that while the current conditions are challenging, there is an expected upturn.
Looking forward, Micron predicts a modest 5% growth in the PC market for 2025, though consumer upgrade cycles are slower than previously expected. The mobile business unit saw a sequential revenue drop of 19%, attributed to these inventory adjustments, with similar declines in automotive and industrial sectors.
Micron’s strategic response includes a planned capital expenditure of $14 billion for fiscal 2025, with adjustments made to reduce spending on new storage chip production. This cautious approach in capacity expansion, shared among the major memory manufacturers including Micron, SK Hynix, and Samsung, aims to mitigate the boom-and-bust cycles typical of the industry by avoiding overproduction that leads to price crashes.
The industry’s pivot towards high-bandwidth memory for AI applications offers a silver lining. HBM not only commands higher prices but also represents a complex and less commoditized product, potentially offering more stable revenue streams amidst the traditional volatility of memory pricing. However, while this sector grows, traditional DRAM and NAND markets remain susceptible to supply-demand imbalances, though less so than in previous cycles due to the current disciplined approach to production expansion.
Micron’s journey through these market dynamics underscores the challenges and opportunities in the memory chip sector, balancing between established markets and emerging tech trends like AI, where memory technology plays a crucial role in performance and efficiency.
Price Action: Shares of Micron are currently trading lower at $91.12 in premarket hours, representing a decline of $12.78 or 12.30% compared to the previous session.
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