Intel's Guidance Cut is bad news for Micron and Western Digital – The Motley Fool
PC and server chip giant Intel (NASDAQ: INTC) gave investors quite a shock when it reported the results for the first quarter on Thursday. While the company made expectations, it slashed its full-year view. Intel now expects total revenues to fall for the year, mainly due to lower sales of data central chips.
Although this is obviously bad news for Intel, especially with competition from Advanced Micro Devices ramped up later this year, there may be even worse news for Micron Technology ( NASDAQ: MU) and Western Digital (NASDAQ: WDC) . Here's why.
Data Center Error
Micron produces both DRAM chips, which are used as main memory in PCs, servers, and mobile devices, and NAND chips used for data storage. The markets for both chips are going through major corrections, with significant price falls causing Micron's revenue and profits to plummet.
Western Digital sells hard disk drives and solid state drives, and produces NAND chips through its acquisition of SanDisk in 201[ads1]5. Western Digital has also felt the pain of melting NAND chips.
Intel produces NAND chips, and what the company said about the NAND market during the earnings call, throws some cold water on the idea that prices are near the bottom. Intel's results were injured in the first quarter of "incremental NAND price alert," according to CEO Robert Swan, and the company expects "an incrementally more challenging NAND pricing environment, which will damage its full-year results.
Exactly How bad is it out there in the NAND market? Fellow producer SK Hynix reported a staggering 32% quarterly surplus in NAND average selling prices in the first quarter. In just three months, SK Hynix saw the prices of almost a third.
Image Source: Getty Images.
At the top of tumbling NAND prices, general chip demand from data center requires customers to be weak as they resort to excess inventory. Intel expects a half-income decline this year for the data center group, as a result of this year's business that acts as the company's growth engine.
"Demand pressure is particularly evident in our data center, where we see a continued inventory correction in corporate and communications and capacity digestion among company-controlled company vendors who steered consumption heavily in 2018," said Intel CFO George Davis during the earnings call.
Intel underestimated how poor The situation was, according to Swan: "The data center investment and capacity digestion that we described in January is more pronounced than we expected, and China's headwinds have increased, leading to a more cautious IT spending environment. "
Expecting Rough Results to Continue
Micron already expects its fiscal third quarter ending May to be rough. In the midst of its guidance, Micron expects revenue and non-GAAP earnings per share to crash Western Digital will report its fiscal third quarter results April 29, and it will not be pretty, seeing revenues between $ 3.6 billion and $ 3.8 billion, and non-profit. GAAP EPS between $ 0.40 and $ 0.60 In midpoints of these areas, revenue will be down 26% and non-GAAP EPS will be down to 86%.
With Intel predicting further NAND price degradation, along with a poorer than expected data center demand environment, Micron and Western Digital may not be out of the woods anytime soon.
Micron's CEO Sanjay Mehrotra said in March of March that the company expects that the growth of the data center will continue in the second half of the year, as the customer management positions improve. And Intel is still optimistic that demand will improve in the second half. But the growth in bit volumes in the memory chip does not mean that prices will return. If demand continues to supply the supply, the price environment will remain weak.
While it is impossible to say exactly when the memory market will pile out, Intel's comment suggests that much more pain is ahead of memory chip companies such as Micron and Western Digital.
