MU Stock: Micron Warning drives semiconductor stocks lower

Memory chip manufacturer Micron Technology (MU) warned Tuesday of weakening demand and said its sales in the current quarter could be at the low end or below its target range. Shares of MU fell on the news and dragged other semiconductor stocks lower.


Boise, Idaho-based Micron provided an update on trading terms in a filing with the Securities and Exchange Commission. The company said it recently saw “widening customer inventory adjustments” “due to macroeconomic factors and supply chain constraints.”

Micron said its expectations for demand for DRAM and Nand memory chips have declined since its June 30 earnings call.

It sees a “challenging market environment” in its current fiscal fourth quarter and for the next quarter, its fiscal first quarter. Micron expects “significant sequential declines in revenue and margins” in the first quarter. Additionally, he expects negative free cash flow in the first quarter.

MU Stock plunges after warning

In response to deteriorating market conditions, Micron said it was reducing capital expenditures on wafer fabrication equipment.

In afternoon trading on the stock market today, MU stock fell 5.1% to 58.29.

Other semiconductor stocks fell in sympathy. The Philadelphia Semiconductor Index, known as the SOX, fell 5.1%. The SOX includes the 30 largest semiconductor stocks traded in the United States

Reduced target price for Micron shares

Susquehanna Financial Group analyst Mehdi Hosseini cut his price target on MU stock to 68 from 82. But he kept his positive rating on the stock.

“The memory industry, including Micron, is in the midst of a significant inventory correction by customers, something the rest of the semiconductor industry must navigate through until calendar year 2023” , Hosseini said in a note to clients.

He added: “Maybe memory is the first sector to see a severe inventory correction (customers), and the first to come out of it (by mid-2023?).”

Negative free cash flow is “sticky in the eye”

Investors in semiconductor stocks were already bracing for a weak end-August quarter from Micron, said Jordan Klein, managing director of technology, media and telecommunications at Mizuho Securities. But Micron’s warning added yet another negative data point to the company’s outlook for the November quarter, it said in its note to clients.

The “biggest stick in the eye” for MU stock investors is Micron’s forecast for negative free cash flow in its fiscal first quarter, Klein said.

“Many pointed out that, as bad as memory conditions may be, MU would remain cash flow positive through the ultimate downturn,” Klein said. “Well, it’s not.”

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.


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