The forecast for Q3 2022 drove this week’s fall. The management painted a dismal outlook for the future, and investors were not happy.
The business outlook has been weaker than expected throughout this year. For the past few years, it has recorded double-digit growth in sales and revenue. However, this year has been different. The negative outlook is not only for Micron but for the semiconductor industry.
Micron (NASDAQ: MU) forecasted $7.2 billion in revenue for this quarter, but industry estimates were set at $9.05 billion. Earnings per share were forecast at $1.83, but investors were disappointed because they were expecting earnings per share of $2.62. Many investors started selling their shares in Micron due to the results.
With these results, we have confirmed what we believed since the start of this year. Due to macroeconomic headwinds like rising interest rates, surging inflation, and geopolitical conflicts in Europe, demand for the industry has fallen. This could signal that the semiconductor industry's fortunes are on the plunge.
The company’s shares fell 6.3% after the report but regained some losses later.
What Will The Future Look Like For Micron?
Maybe this could be the end of the downward cycle that began this year. Micron could be seeing the bottom. Micron is a stock that has strong fundamentals. It has had a lot of solid growth over the past two years, which will help it hold up to the present pressures. This could likely be the bottom unless the pricing pressure on the industry continues into the second half of 2022.
Micron (NASDAQ: MU) management has said it will reduce the number of chips it makes. As a result, they expect to shore up prices in the short term with reduced supply. We hope other players in the industry follow suit.
Particularly noticeable was the effect of China’s lockdown on the company’s revenue. Micron’s revenue from its China operations has dropped by 30%. This has spiraled into an overall drop of 10% in total revenue. Also, macroeconomic headwinds like the war in Ukraine have made the demand for laptops, smartphones, and other equipment that uses chips manufactured by Micron become slow. We had seen a broad drop in chip prices since February when the war started. Inflation and interest rates have not also been kind to chip prices.
We believe Micron can shore up prices by cutting chip supply in the industry. It can also hold some inventory to prevent a steep drop in supply when it cuts chip supply. You should note that two-thirds of Micron's revenue comes from the chips it manufactures for personal computers, smartphones, and data center equipment. So, when these chip prices fall, Micron's revenue will be severely affected. With the continued fall in these prices, we forecast woes for Micron in the short term.
Is Micron Stock A Buy Or Sell Now?
Micron's revenue and the price of chips have a direct relationship because its revenue falls when it falls. That has been the vulnerable spot in the company's business model. This quarter, DRAM chips have fallen by 5%. Based on our forecasts, we expect a further drop to 8% by the year's third quarter. Moreover, the Fed has not stemmed surging inflation. Therefore, demand is very soft, and inventory has built up over the months, so Micron (NASDAQ: MU) is in the midst of a bad news triangle.
The present earnings report says it all. Micron’s fortunes have plunged. The company is not delivering what investors expect. As a result, many of them are dumping the stock. The terrible performance this year is a cause of concern to management. Unless they do something fast to stem the steep fall in chip prices, more investors will dump the stock. As a result, we believe that Micron stock is a sell.
But the company could overcome the present headwinds and rise when it finds the bottom.