Micron’s warning of weak demand rattles chip stocks

Micron Technology’s solid-state drive for data center customers is presented at a product launch event in San Francisco, U.S., October 24, 2019. REUTERS/Stephen Nellis/File Photo

Aug 9 (Reuters) – Micron Technology ( MU.O ) cut its revenue forecast for the current quarter on Tuesday and warned of negative free cash flow in the next three months as customer inventories pile up amid slowing demand for chips used in PCs and smartphones.

The gloomy forecast comes a day after Nvidia ( NVDA.O ) warned of weakness in its gaming business, highlighting fears of the first slowdown in the chip industry since 2019.

That sent Micron shares and the Philadelphia SE Semiconductor index (.SOX) down 5.7% and 4.3%, as investors looked past US President Joe Biden signing a landmark bill of $52.7 billion in subsidies for semiconductor manufacturing and research. Micron CEO Sanjay Mehrotra was among the participants at the signing. read more

Micron also announced a $40 billion investment in US memory chip manufacturing, but said capital spending was expected to decrease in fiscal 2023 from 2022.

Fourth-quarter revenue is likely to come in at or below the low end of the company’s previous forecast. The previous range of $6.8 billion to $7.6 billion had missed Wall Street targets in June. read more

Micron, which last reported negative free cash flow in 2020 in the early days of the pandemic, warned it could see significant sequential declines in revenue and margins in the first quarter due to a drop in shipments.

Rising prices have forced consumers to curb their spending on electronic gadgets, prompting production revaluations by companies sitting on excess inventory of chips and other components in anticipation of strong post-pandemic demand.

PC shipments are expected to fall 9.5% this year, according to IT research firm Gartner.

That, and demand for smartphones, has drawn demand-related warnings from Micron and others including Intel ( INTC.O ), Advanced Micro Devices ( AMD.O ), Qualcomm ( QCOM.O ) and Nvidia Corp ( NVDA.O ).

Micron is also seeing cloud, industrial and automotive customers make “inventory adjustments” due to macro uncertainty, chief financial officer Mark Murphy said at the Keybanc Technology Leadership forum on Tuesday.

“It’s a challenging setup for this quarter.”

Reporting by Chavi Mehta in Bengaluru; Editing by Anil D’Silva and Devika Syamnath

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