Micron’s weak demand warning rocks chip stocks

Micron Technology’s solid state drive for data center customers is shown during a product launch event in San Francisco, U.S., October 24, 2019. REUTERS/Stephen Nellis/File Photo

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Aug 9 (Reuters) – Micron Technology (MU.O) on Tuesday cut its revenue forecast for the current quarter and warned of negative free cash flow over the next three months as customer inventories s are piling up amid falling demand for chips used in PCs and smartphones.

The grim forecast comes a day after Nvidia warned of weakness in its gaming business, heightening fears of the first chip industry downturn since 2019.

It sent shares of Micron and the Philadelphia SE Semiconductor Index (.SOX) tumbling 5.7% and 4.3%, as investors looked past US President Joe Biden signing a landmark bill of $52.7 billion in subsidies for semiconductor production and research. Micron chief executive Sanjay Mehrotra was among the signing participants. Read more

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Micron also announced a $40 billion investment in U.S. memory chip manufacturing, but said capital spending is expected to decline in fiscal 2023 compared to 2022.

Fourth quarter revenue is expected to be at or below the low level of the company’s previous guidance. Its prior range of $6.8 billion to $7.6 billion was below Wall Street’s June targets. Read more

Micron, which last reported negative free cash flow in 2020 at the start of the pandemic, warned it could see significant sequential declines in first-quarter revenue and margins due to a decline deliveries.

Soaring prices have forced consumers to cut spending on electronic gadgets, leading to production revaluations at companies sitting on excess inventory of chips and other components in anticipation of strong post-pandemic demand .

PC shipments are expected to fall 9.5% this year, according to IT research firm Gartner.

That, and the demand for smartphone cooling, has prompted demand-related warnings from Micron and others, including Intel (INTC.O), Advanced Micro Devices (AMD.O), Qualcomm (QCOM.O) and Nvidia Corp (NVDA.O).

Micron sees cloud, industrial and automotive customers also making “inventory adjustments” due to macroeconomic uncertainty, Chief Financial Officer Mark Murphy said Tuesday at the Keybanc Technology Leadership Forum.

“It’s a tough setup for this quarter.”

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Reporting by Chavi Mehta in Bengaluru; Editing by Anil D’Silva and Devika Syamnath

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