Memory-chip maker Micron Technology on Tuesday warned of weakening demand and said its sales in the current quarter could be at the low end or below its target range. MU stock tumbled on the news and pulled other semiconductor stocks lower.
Boise, Idaho-based Micron provided an update on business conditions in a filing with the Securities and Exchange Commission. The company said it has seen a "broadening of customer inventory adjustments" recently "due to macroeconomic factors and supply-chain constraints."
Micron said its expectations for DRAM and Nand memory-chip demand have declined since its June 30 earnings call.
It sees a "challenging market environment" in its current fiscal fourth quarter and for next quarter, its fiscal first quarter. Micron forecast "significant sequential declines in revenue and margins" in the first quarter. Also, it expects to be free cash flow negative in the first quarter.
MU Stock Dives After Warning
In response to the worsening market conditions, Micron said it is reducing its capital expenditures on wafer fabrication equipment.
On the stock market today, MU stock fell 3.7% to close at 59.15.
Other semiconductor stocks fell in sympathy. The Philadelphia semiconductor index, known as SOX, dropped 4.6%. The SOX includes the 30 largest semiconductor stocks traded in the U.S.
Price-Target Cut For Micron Stock
Susquehanna Financial Group analyst Mehdi Hosseini cut his price target on MU stock to 68 from 82. But he kept his positive rating on shares.
The "memory industry including Micron is in the midst of a meaningful inventory correction by customers, something that the rest of the semiconductor industry needs to go through into calendar year 2023," Hosseini said in a note to clients.
He added, "Perhaps memory is the first sector to experience severe (customer) inventory correction, and the first to come out of it (by mid-2023?)."
Negative Free Cash Flow Is 'Stick In The Eye'
Investors in semiconductor stocks were already bracing for a weak August-ending quarter from Micron, said Jordan Klein, managing director for tech, media and telecom sector trading at Mizuho Securities. But Micron's warning added a new incremental negative data point for the company's November-quarter outlook, he said in his note to clients.
The "biggest stick in the eye" for MU stock investors is Micron's guidance for negative free cash flow in its fiscal first quarter, Klein said.
"Many have highlighted that as bad as conditions in memory might get, MU would remain cash flow positive through the ultimate downturn," Klein said. "Well, that is not happening."
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