Micron updates its performance guidance, with adjusted operating expenses exceeding expectations. Pre-market trading sees a sharp decline of 6%.

Micron Technology, the largest memory and storage semiconductor manufacturer in the United States, updated its performance guidance for the first quarter of the 2024 fiscal year, ending on November 30, 2023. Although the company raised its revenue guidance and exceeded expectations, its stock price plummeted 6% in pre-market trading and dropped over 3% during the trading session due to higher-than-expected operating expenses.

According to the updated guidance, Micron Technology expects an adjusted loss per share of $1.00 for the first quarter, compared to the previous estimate of a loss of $1.00 to $1.14 per share. The company also expects revenue of approximately $4.7 billion for the first quarter, surpassing the previous estimate of $4.4 billion +/- $200 million. Adjusted revenue for the first quarter is projected to be $4.7 billion, while analysts expected $4.41 billion, and the company originally estimated $4.2 billion to $4.6 billion. The adjusted gross margin for the first quarter is expected to decline by 0.5% to break even, compared to analysts' expectation of a 1.71% decline.

However, the company anticipates that its operating expenses for the first quarter will be around $990 million, higher than the previous estimate of $885 million to $915 million. Micron Technology CEO Sanjay Mehrotra attributed the increase in operating expenses to timing related to research and asset sales.

The semiconductor industry has faced headwinds in the past two years, and investors are hoping for a turning point; otherwise, the industry's situation will become even more challenging. Previously, the balance of supply and demand in the semiconductor market and market pricing had improved, and it was expected that the situation of chip oversupply would come to an end. Additionally, some investors had hoped that Micron Technology could withstand the slow recovery in other end markets with its AI-related products. Therefore, it was widely expected that Micron Technology would raise its performance guidance. However, the updated guidance for the new fiscal quarter disappointed these investors.

Micron Technology's stock fell by about 6% in pre-market trading, but the decline narrowed to around 3% during the trading session, closing at $75.08. Year-to-date, Micron Technology's stock has risen by 55% due to expectations that the situation of chip oversupply is coming to an end.

Analysts noted that the fundamentals of the memory and storage semiconductor market are strong, and market expectations were generally high before Micron Technology's performance guidance was announced. However, the performance upgrade announced by Micron Technology did not meet analysts' expectations.

According to Micron Technology's financial report released two months ago, the company's total revenue for the entire 2023 fiscal year was $15.5 billion, a 49% decrease compared to the previous fiscal year. DRAM memory revenue decreased by 51% to $11 billion, accounting for 71% of total revenue. NAND flash revenue declined by 46% to $4.2 billion, accounting for 27%.

Earlier, Micron Technology stated that it would begin producing high-bandwidth memory for high-profit AI chips next year and revealed that capital expenditures for the 2024 fiscal year would be "slightly higher" than in 2023. It is expected that the company's pricing and profitability will improve in the 2024 fiscal year. Micron Tech also stated that the inventory of customers, including the automotive, personal computer (PC), and smartphone sectors, has mostly returned to normal levels. The inventory of data center customers is also improving and is expected to return to normal by early 2024.

At the time, CEO Mehrotra predicted that the market recovery would take shape in 2024. With the expanding impact of AI, not limited to data centers, the overall potential market industry revenue in 2025 is expected to reach a record high.

According to Global Times, in June of this year, Micron Tech announced its commitment to developing the Chinese market and plans to reinvest 4.3 billion yuan in its chip packaging and testing factory in Xi'an over the next few years. Mehrotra stated in the announcement that this investment plan demonstrates Micron Tech's unwavering commitment to its Chinese business and team.

Micron Tech stated that this investment will enhance the company's flexibility in manufacturing a variety of product portfolios in Xi'an, allowing Micron Tech to directly operate its packaging and testing business in the Xi'an factory. Additionally, the investment plan will include the purchase of packaging equipment from Micron Tech's subsidiary, Licheng Technology, located in Xi'an, Taiwan. Furthermore, the statement also indicated that Micron Tech will establish a new production line in the Xi'an factory to manufacture mobile DRAM, NAND, and SSD products, strengthening the packaging and testing capabilities of the Xi'an factory. The new investment project will also create an additional 500 job positions, increasing Micron Tech's total number of employees in China to over 4,500.

Citing Reuters, Global Times reported that in May of this year, the Cyberspace Administration of China pointed out that after reviewing, it found serious cybersecurity risks in Micron Tech's products, which posed significant security risks to China's critical information infrastructure supply chain and affected national security. As a result, the Office of Cybersecurity Review concluded that Micron Tech's products did not pass the cybersecurity review. According to the Cybersecurity Law and other relevant laws and regulations, operators of critical information infrastructure in China should stop purchasing Micron Tech's products.