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MarketWatch First Take: Micron earnings suggest the chip downturn could be worse than Wall Street expects


Micron Technology Inc. executives warned about a semiconductor downturn in late June, but now say that a “sharp and sudden” drop in demand exceeded even those expectations, suggesting the current chip glut could get a lot worse.


reported a worse-than-expected fiscal fourth quarter Thursday, with revenue plunging 23% from last year, but that wasn’t the big miss. Executives guided for $4 billion to $4.5 billion in revenue in the current quarter, more than $1 billion lower than analysts’ expectations, and suggested they could post a loss in the quarter even on an adjusted basis.

“As we look ahead, macroeconomic uncertainty is high and visibility is low,” Micron Chief Financial Officer Mark Murphy told analysts on a conference call. He forecast the company’s inventories will continue to rise further from their high levels in the first half of fiscal 2023.

Micron’s report should send some fear through the chip sector and its investors — Micron reports earlier than other semiconductor companies because of its odd fiscal year, which ended on Sept. 1, so it can be a harbinger of what is to come throughout the coming earnings season. After Micron executives basically admitted three months ago that the pandemic-era chips party was over, other semiconductor companies such as Intel Corp.

and Nvidia Corp.

disappointed investors with later results.

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Micron’s data-center business could be a similar doomsayer this quarter. While a downturn in chips for PCs and smartphones was expected as sales fell after a huge boom during the pandemic, data center was expected to hold up due to strength in cloud computing. Micron disclosed, however, that data-center revenue was down sequentially and year over year, driven primarily by lower average selling prices.

In addition, declines in PC and smartphones were sharper than the previous quarter.

Even though Wall Street had been warned by Micron that business was slowing down, the news on Thursday was a surprising admission that the downturn hit the company faster than it had been expecting. Micron shares, though, were taking the news mostly in stride after an initial drop, and actually ended after-hours trading in positive territory.

That is likely because Wall Street was somewhat prepared for a disappointing result from Micron. Wedbush Securities analyst Matt Bryson, for example, wrote in a note to clients on Monday: “When Micron guided FQ4 initially, it appeared as if management was assuming a worst-case scenario. In retrospect, their guide likely did not prove conservative enough.”

Bryson warned in his note to clients that data center remains a key concern going forward. “We are a bit unclear on how much of this shift is tied to constraints of necessary components versus weakening server requirements,” he wrote, adding that he sees headwinds ahead in the data-center business.

From three months ago: The chip boom is over, as Micron says it’s in a ‘downturn’

Micron executives tried to put a positive spin on the future, noting that the company has a strong balance sheet and that it and the rest of the industry were taking “prudent actions,” to manage supply growth. But they also pointed out that the pricing environment was getting “aggressive” and industry profitability for memory chips was going to be challenging in 2023.

Investors already knew that the environment had changed for chip companies after the pandemic shortage turned into a glut, just as demand started to drop off. And like last quarter, the question of the magnitude of the semiconductor downturn remains. Micron’s report and outlook both suggest that it could still be much deeper than current forecasts.

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