The shares of Micron Technology (Nasdaq: MU) fell by 4.72% or $2.90 to $58.55 after the company cautioned that it anticipates negative free cash flow for the running (4Q22) quarter. Citing declining demand for DRAM and NAND chips from video games, smartphones, and personal computer-related firms, Micron also forecasts a drop in revenues and profit margins. The stock lost 3.74%, or $2.30, to close at $59.15.
Boise, Idaho-based Micron, in its latest SEC filing, has revealed that the fourth-quarter revenue may meet or miss the lower end of the earlier guidance range of $6.80 billion to $7.60 billion. The chip maker issued the outlook during the earnings call in June. The downward revision was carried out on the basis of macroeconomic factors and supply chain issues.
The company also anticipates considerable sequential decreases in margins and revenue in 1Q 2023. The likely decline was attributed to a drop in shipments. Notably, two years back, at the start of the pandemic, Micron reported negative free cash flow. The steep rise in inflation, the Russia-Ukraine war, and COVID-19-related prohibitions in China’s PC market, as per the company, have affected demand and also aggravated supply chain issues.
To manage the deteriorating economic scenario, the company has decided to further slash the F 20Y23 capital outlay for wafer fab equipment (WFE) in addition to the reductions announced during the June earnings call. Therefore, Micron’s FY23 capital expenditure will be considerably lower than that of FY 2022.
As per market research company TrendForce, there will be an oversupply of DRAM chips in 2023. Notably, SK Hynix Inc. and Western Digital have also cautioned about a drop in orders from clients as they prepare for a likely recession.
Interestingly, in a separate news release, the company announced a $40 billion investment in a top-notch memory chip manufacturing plant in the US. The investment will be made by the end of 2030. Once operational, the plant will create 40,000 jobs, including 5,000 high-paying roles. More importantly, following the investment, Micron expects an increase in its market share to 10%, from 2%.
Dean McCarron, president of Mercury Research, which mainly focuses on the market share of chip manufacturers, opined that it expects the market to hit a new nadir in the second half of 2022, but the third (calendar) quarter might be shaky based on the quantity of stock left for clearance.
Similar to Micron, chip manufacturers such as Intel (Nasdaq: INTC), Nvidia (Nasdaq: NVDA), and Advanced Micro Devices (Nasdaq: AMD) have already issued a note of caution about rising inventories.
Micron’s Q4 top-line warning is expected to keep the stock slightly bearish in the short term.
The historical price chart indicates that the stock of Micron is declining after facing resistance at 62. The next major support is anticipated near 55. Additionally, the stock has closed below its 50-day moving average while the stochastics indicator has started declining towards the bearish zone. Therefore, we anticipate the stock of Micron to remain in a downtrend in the short term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
