Micron stock declines after forecast fails to meet lofty AI spending expectations

Micron’s fiscal fourth-quarter sales will be US$7.4 billion to US$7.8 billion, the company said in a statement on Wednesday. While the average analyst estimate was US$7.58 billion, some projections were above US$8 billion. Profit will be about US$1.08 a share, minus certain items, versus a projection of US$1.02.

Though Micron is getting a boost from the global AI boom, demand is still sluggish in its traditional markets, such as personal computers and smartphones. Those sectors are only beginning to recover from a historic slump last year.

The Nasdaq-listed company’s shares fell about 7 per cent in extended trading. Micron had rallied 67 per cent this year before the close, lifted by investor expectations that it will be one of the main beneficiaries of AI spending.

A bare wafer stacker sorts silicon wafers in Building 51 at Micron Technology’s headquarters in Boise, Idaho, on June 10, 2024. Photo: Bloomberg

In the third quarter, which ended May 30, Micron’s revenue rose 82 per cent year on year to US$6.81 billion. The Boise, Idaho-based company reported a profit of 62 cents a share, excluding certain items. That compares with estimated sales of US$6.67 billion and a projected profit of 50 cents a share.

Micron sells a vital component of AI hardware – high-bandwidth memory (HBM) chips – that works with processors from Nvidia Corp to crunch data. HBM chips can serve up information more quickly, helping computing systems develop and run AI models.

Micron sold US$100 million of its new HBM3e chips in the just-completed quarter and predicts that total sales of high-bandwidth products will rise to “several hundred million dollars” in the current period. It will then increase to multiple billions in fiscal 2025, which runs through August of that year.

Ramping up production of HBM chips has been a challenge, however. The difficulty of increasing factory output – and qualifying the chips to work with computer systems – supply effectively has a “hand brake on it”, Manish Bhatia, Micron’s executive vice-president of global operations, said in an interview.

Micron Technology’s headquarters in Boise, Idaho. Photo: Bloomberg

In light of those constraints, Micron expects pricing to steadily increase. There is also less chance of the memory market returning to an inventory glut, an issue that has long plagued the industry.

The US firm is on course to spend about US$8 billion on new plants and equipment in fiscal 2024. That budget will increase materially next year in support of construction at sites in Idaho and in New York state.

The Idaho facility will not contribute to supply until fiscal 2027, with the New York site coming the following year, Micron said. But the timing may depend on Micron’s analysis of supply and demand.

Sanjay Mehrotra, president and chief executive of Micron Technology, speaks to members of the media during a tour of the company’s headquarters in Boise, Idaho, on Monday, June 10, 2024. Photo: Bloomberg

In a slide presentation, the company said that sales to the PC industry remain on track to increase by a percentage in the low single digits in calendar 2024. Smartphone units will gain by a low- to mid-single-digit range. The company expects AI features to help spur demand for smartphones and PCs heading into 2025.

Micron chief executive Sanjay Mehrotra reiterated a view that 2024 would mark a rebound for the memory chip industry, with record sales coming in 2025.

Micron competes with South Korea’s Samsung Electronics and SK Hynix in selling chips that provide short-term memory in computers and smartphones. They also makes flash memory, which handles longer-term storage in those devices.

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