Micron Technology's (MU) mention of a memory demand slowdown has shares falling on Wednesday morning.
Shares of the Boise-based semiconductor leader fell over 8% at their lows after Tuesday night's fiscal 2019 first quarter earnings call, setting up the company for its lowest open in over a year.
The decline in shares is largely driven by the company's guidance that confirmed fears about a slowdown in memory demand and an existing supply glut. The company guided current quarter sales to between $5.7 billion and $6.3 billion and put forth EPS estimates of between $1.65 to $1.85. The outlook falls well short of the analyst consensus of $2.45 in earnings per share and sales of $7.2 billion.
"We're just going through an air pocket here related to primarily inventory adjustments as well as some seasonal, weak mobile demand, including mobile demand on the high-end smartphones that is impacting some of our near-term visibility as well as the near-term outlook," CEO Sanjay Mehrotra told analysts on a conference call late Tuesday.
Micron is also planning to reduce its capex spending by $1.25 billion to cut production of both NAND and DRAM memory. The move marks a reversal of its forecast from earlier this year in which it said that capex would remain high as "capital spending will be associated with facilities expansions and facilities upgrades needed for successful technology transitions."
Analysts have not taken well to the company's characterization of the anxiously anticipated demand forecast, as its implications are actually worse than many anticipated for DRAM and NAND memory supply and demand dynamics.
"We bristle at Micron's characterization of the current downturn as an air pocket," BMO Capital Markets Ambrish Srivastava wrote in his reaction on Wednesday. "The downturn appears broad, ranging from mobile to data center to enterprise. Our estimates are going a lot lower, as is our target price."
Srivastava slashed his price target from $38 per share to $32 per share, an over 15% cut, while maintaining his "Market Perform" rating.
The demand issues are not only broad but they may not abate any time soon either.
"We are nowhere close to the bottom in the current inventory cycle, as several broader industry issues still persist," Piper Jaffray analyst Harsh Kumar said. "We do not know how much further the bottom could be."
He cited Mehrotra's comments on the inventory correction as extending to cloud, enterprise, and graphics market, CPU shortages, and mobile as a signal of just how far-reaching the problems in memory pricing are.
Further, given the company generates nearly 60% of its revenue from mainland China, macro issues in trade only serve to exacerbate the cyclical struggle the company is encountering.
Amid the troubled forecast, Kumar cut his price target from $48 per share to $36, noting that he is not confident in Mehrotra's bet on a bounce-back due in the second half of 2019.
Competitors like Applied Materials (AMAT) and Lam Research (LRCX) are lower in pre-market as well, as Micron's forecast brings fears of a major cyclical slowdown to the forefront for semiconductor stocks.