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Micron Technology (NASDAQ:MU) shares tumbled Tuesday after the company cut its revenue forecast for the current quarter and warned of negative free cash flow in the next quarter due to macroeconomic factors, supply chain challenges, and declining demand.
The memory chip maker said fiscal fourth quarter revenue may come in at or below the low end of the revenue guidance range provided in the company’s June 30 earnings call. The previous estimate of $7.2 billion, plus or minus $400 million, missed the consensus expectation when it was first announced.
Micron Technology shares are down around 5% at the time of writing.
Furthermore, they expect fiscal first quarter bit shipments to decline sequentially, resulting in “significant sequential declines in revenue and margins,” while free cash flow is expected to be negative in fiscal Q1.
Demand in the sector has been hit by soaring inflation, the Ukraine-Russia conflict, and COVID restrictions in China. In addition, Micron added they have seen a rise in customer inventories, something companies such as AMD (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA) have warned of.
The guidance cut comes on the same day the company announced a $40 billion investment in memory chip manufacturing in the US, enabling Micron to grow domestic production of memory from less than 2% to up to 10% of the global market in the next decade.
Reacting to today’s announcements, a Goldman Sachs analyst said the “business update is largely consistent with our recently updated estimates.” However, they acknowledge that there could be further downside to their bit shipment forecasts.
Meanwhile, Mizuho’s Jordan Klein stated: “I think semi investors were bracing for a weak Aug Q3 from MU with possible downside to cons ests. But the NEW INCREMENTAL NEGATIVE DATA POINT is the Nov Q1 outlook and update from MU that implies a further worsening of the financials. MU sees bit shipments, revs, and margins in Q1 facing “significant sequential declines.”
“I think the biggest stick in the eye and bit to the BULL MU THESIS is the guide for NEGATIVE FCF for Nov Q1. Many have highlighted that as bad as conditions in memory might get, MU would remain cash flow positive through the ultimate downturn. Well, that is not happening. Not the end of the world, but adds pressure to the view MU is safe to own close to 1x book value as that book value not going lower (was est to be $50-55 per share range). Probably still is safe, but less so than prior expectations.”
