Micron’s share price has fallen by about 20% since the beginning of May as chipmaker and semiconductor stocks have come under pressure from various quarters.
Micron’s Q3 results are out on Tuesday after the US close and revenue for the quarter is projected to drop 39.4% to $4.72 billion, from $7.8 billion in Q3 of the previous year. Q3 profits are expected to come in at $0.81 a share.
The Idaho-based company is one of the leading global providers of advanced semiconductor solutions, and their dynamic random-access memory (DRAM) and NAND (flash memory) chips are used in personal computers, servers, smartphone technology and solid-state hard drives the world over. That said, the chip market is cyclical in nature, which brings its own challenges, and there are a number of other influences affecting Micron’s share price for the worse.
Micron’s share price and the US-china trade war
Chipmaker and semiconductor stocks have been at the centre of the US-China trade war in recent months, as the impact of tariffs hits their global business model. Micron’s sales to Chinese companies like Huawei have grown significantly in the past few years, with Huawei accounting for 13% of revenue. As a result, we could see a significant miss as well as a possible downgrade in Micron’s Q3 numbers. Profits in the coming months are also likely to be significantly lower, unless the company can offset the loss of Huawei business elsewhere.
Back in 2018, when Trump announced another round of tariffs on Chinese imports, the chipmaker’s CEO Sanjay Mehrotra said he expected that Micron would be able to smooth out the negative effect on its numbers ‘over the course of the next three to four quarters’. This was also at a time when a Chinese court banned Micron from selling chipsets in the country. It will be interesting to see if the Q3 numbers back up Mr Mehrotra’s sentiments from a year ago.
Whatever the case, if we don’t see some kind of resolution to the US-China trade war, the impact on revenue and Micron’s share price could continue to have shareholders feeling decidedly jittery.
The impact of chip pricing on the Micron share price
To add to the challenges currently facing Micron, the memory chip industry has had to contend with significant drops in DRAM and NAND pricing. It’s thought that the sharper-than-expected decline in chip prices can be put down to reduced demand from companies like Apple, combined with excess inventory.
The Broadcom downgrade
The recent downgrade by Broadcom has only served to amplify concerns around the outlook for the semiconductor industry as a whole. Broadcom’s guidance reiterated that the loss of revenue from the Huawei ban for many US chip suppliers, and the knock-on effect creating an uncertain demand environment for the smartphone supply chain, are considerable concerns for the industry.
Whichever way you look at it, the outlook for the semiconductor industry is hazy to say the least and this is likely to be reflected in Micron’s share price and the Q3 results.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.