- Memory chips giant cuts Q4 earnings and sales steer

- Consumer gadgets spending hit by inflation pressures

- Stock has lost 42% in 2022 and likely to fall on Friday

The semiconductors industry has always been cyclical, so microchip manufacturers tend to do well when the global economy is strong. But the opposite is also true, so deep cuts to guidance by Micron Technology (MU:NASDAQ), a sector bellwether, will be seen by investors as another grim warning that recession is just over the hill.

Micron reported mixed third-quarter results overnight that beat analyst estimates, but slashed Q4 guidance in a pointer to a gloomy backdrop ahead for the chipmaker as excess inventories and slower spending on consumer electronics hurt demand.

Micron Technology reported Q3 earnings per share of $2.59, 6% ahead of the consensus forecast of $2.44, on revenue of $8.64 billion, which also nudged north of estimates pitched at $8.63 billion.

In Q4, Micron now expects EPS and revenue of $2.46 and $8.68 billion, way below the previous analyst consensus of $2.62 and $9.05 billion.

GADGET SHIPMENTS IN DECLINE

The backdrop for chipmakers including Micron has deteriorated sharply this year as demand for consumer electronics has been rocked by supply-chain disruptions, geopolitics and surging inflation.

Global shipments of total devices including PCs, tablets and mobile phones are on pace to decline 7.6% in 2022, according to data released on 30 June by technology research firm Gartner. Shipments of PCs are expected to fall 9.5% this year, while smartphones volumes are projected to retreat 5.8%.

In response to the ‘weakened’ demand environment, Micron said it was taking action to moderate its supply growth in fiscal 2023.

SLOWING CONSUMER SPENDING

Micron is a big supplier of memory chips. Consumers tend to buy more smartphones, home computers, TVs, cars and all sorts of other things that rely on memory chips to work, and US and European consumer-spending growth cooled in May.

Micron shares, which have fallen 42% so far in 2022, are set to lose another near-4% when Wall Street reopens later today.

Tech companies with ties to PCs, such as Intel (INTC:NASDAQ), Nvidia (NVDA:NASDAQ) and Microsoft (MSFT:NASDAQ), have adjusted their plans and are slowing some hiring. HP (HPQ:NYSE) and Dell Technologies (DELL:NYSE) are grappling with slower sales of low-cost laptops that had boomed during the pandemic.

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Issue Date: 01 Jul 2022