(Reuters) – U.S. chipmaker Micron Technology, Inc. (MU.O) on Tuesday gave quarter sales and profit forecasts well below Wall Street estimates, citing a market of abundance of memory chips as consumer and business demand for phones and computers is weakening.
Memory chip parts of the U.S. memory chip maker MicronTechnology are shown at their fair stand at an industrial fair in Frankfurt, Germany, July 14, 2015. REUTERS/Kai Pfaffenbach/File Photo
Micron said that it is expected that the industry output, including the Korean rivals Samsung Electronics Co Ltd (005930.KS) and SK Hynix (000660.KS), exceed the demand of the makers of phones, Pc’s and servers, to push down the Micron chip prices. Chief Executive Sanjay Mehrotra told investors on a conference call that Micron was taking decisive actions in terms of reducing our production output” to hold the line on prices.
“We are always working on how to best align our output with the demand of the market to focus on delivering healthy profitability,” Mehrotra said in an interview.
But the abundance will hammer Micron on the short-term, with the estimate of sales of $ 5.7 billion to $6.3 billion for the second quarter and the gross margins of 50 to 53 percent, compared with analysts estimates of $7.3 billion and 55 percent, according to IBES data of Refinitiv.
Shares of the Boise, Idaho-based company fell as much as 8.5 percent in extended trading after the forecast, before paring losses to 2.8 percent.
“Worse may not be over yet as the end market demand weakens further,” said analyst Kinngai Chan Top Insights Group.
Micron is a response to the oversupply of DRAM and NAND memory chips by investing in the next generation of chips. Main suppliers for smartphone manufacturers like Apple Inc (AAPL.O) have lowered their revenue forecasts, citing weak demand from device makers.
Data centers, which are a blessing for Micron such as cloud computing providers, such as Amazon.com’s (AMZN.O) and Amazon Web Services have grown to be huge companies, were a weak spot in the Micron’s earnings. On the post-transcription, Mehrotra cited “inventory adjustments” on the centers of information for the press on the revenue.
Several chipmakers have cited strong demand in the last months before the US tariffs were imposed on a number of Chinese goods, which analysts are wondering whether data-center owners had tried to get the orders in ahead of all the charges.
“We expect that these headwinds will continue for a few quarters. We see a number of cloud customers to go through a digestion period after a very strong growth in the last two years,” Mehrotra said.
Stifel analyst Kevin Cassidy said Micron was making the right move by cutting output instead of cutting prices to gain market share as it was in the past.
“Today We see the announcements as prioritizing profitability over market share,” he said.
Micron’s gross margin was 59 percent for the fiscal first quarter, and the managers said that the AMERICAN tariffs on Chinese goods reduction of the gross margin of approximately half a percentage point, at the lower end of the negative impact that it told investors in September.
Micron is ahead of schedule in the approach of the expected impact of the US. the rates on its products, Manish Bhatia, Micron is executive vice president of global operations, said in an interview.
“We have very good progress on multiple sites and in our (factory) network of the products that were made in China and destined for the United States and quickly transferring them to other sites that are outside China,” he said.
Net sales increased 16 percent to $7.91 billion, short of analysts ‘ expectations of $8.02 billion.
Net income attributable to the chipmaker rose to $3.29 billion, or $2.81 per share in the quarter that ended Nov. 29, of € 2.68 billion, or $2.19 per share, a year earlier.
Excluding items, Micron earned $2.97 per share, narrowly beating the analyst average estimate of $2.96, according to the IBES data of Refinitiv.
Reporting by Sonam Rai in Bengaluru and Stephen Nellis in San Francisco; Editing by Arun Koyyur, Rosalba O’brien and Richard Chang