Micron’s (MU) problems likely persisted in Q2. What to expect?

Memory chip titan Micron Technology Inc. (NASDAQ: MU) has been hit hard by the demand-supply imbalance in the industry and pricing issues, which have reversed most of the benefits from the boom spurred by the pandemic. The company has adopted measures to ease the impact, such as a reduction in capital expenditure and streamlining production capacity.

Slowdown

In the first quarter, the Boise-headquartered semiconductor firm incurred a loss for the first time in about six years. It has not been immune to the selloff that battered tech stocks last year, but the shares bounced back from the initial dip and soon stabilized, avoiding further losses. Shrugging off the recent weakness, MU gathered some momentum last week and looks poised to stay positive ahead of next week’s earnings.

---

Read management/analysts’ comments on quarterly results

---

The general slowdown in the semiconductor industry and the cyclical nature of the company’s business give an opaque view of its prospects this year. That, together with the cutdown on enterprise tech spending, calls for caution as far as investing is concerned. For that reason, the market will be closely following Micron’s upcoming quarterly report.

Mixed Outlook

Overall, things are expected to improve in the second half of the year when customer inventory is seen moving to healthy levels. This would have a positive effect on shipments and revenues, but profitability would remain under pressure throughout the year. Continuing challenges in its main target markets, including muted PC sales and softening smartphone demand, and uncertainties in the China Market remain a concern for the company.

Micron started fiscal 2023 on a rather dismal note, with all four operating segments contracting in double digits in the first quarter. The resultant 47% fall in total revenues — to about $4 billion — dragged the company into a loss of $0.04 per share, excluding one-off items, from earnings of $2.16 per share in the prior year. The bottom line also missed the Street view, after consistently beating in every quarter over the past several years. Anticipating the weakness to continue, the management has predicted lower revenues and a net loss for the second quarter.

---

Earnings: Highlights of Intel’s Q4 2022 financial results

---

Micron’s CEO Sanjay Mehrotra has said, “customer inventory, which is impacting near-term demand, is expected to continue improving, and we expect most customers to have reduced inventory to relatively healthy levels by mid-calendar 2023. Consequently, we expect the fiscal second-half revenue to improve versus the first half of our fiscal year. We expect our days of inventory (DIO) to peak in our current fiscal Q2 and gradually improve over the next few quarters, as our bit shipments improve and our supply growth is significantly reduced.”

Weak Q2?

Market watchers forecast a loss of $0.75 per share for February-quarter, indicating a sharp deterioration from the prior-year period when the company registered earnings of $2.14 per share. It is estimated that revenues more than halved to $3.74 billion in the second quarter. The results are scheduled to be published on March 28, after markets close.

Micron’s shares opened Monday’s session at $56.70 and traded lower in the early hours. In recent months, they have underperformed the broad market quite often.