Micron’s shares fell 8 per cent on Friday, as its dour margin forecast took the shine off a robust quarterly revenue outlook driven by demand for its semiconductors used in artificial intelligence tasks.
Micron, one of only three providers of high-bandwidth memory (HBM) chips for data-intensive generative AI applications, forecast adjusted gross margin below estimates on Thursday, as lower pricing for consumer memory chips hits profitability.
After a 1.4 per cent drop in 2024, Micron’s shares have gained more than 13 per cent this year as investors bet on improving consumer memory chip pricing and expected the company to benefit from its essential position in AI supply chains.
“NAND Flash oversupply remains a drag on margins,” Rosenblatt analysts said in a note on Friday, referring to a type of memory chip used in consumer electronics like smartphones and personal computers.
Soft end-market demand and aggressive buying by electronics suppliers during the pandemic led to oversupply of the consumer memory chips, resulting in weaker pricing.
Micron forecast third-quarter adjusted gross margin of about 36.5 per cent, marginally below analysts’ average estimate of 36.9 per cent, according to data compiled by LSEG. The forecast represents a sequential drop of 3 per centage points.
“There has been a challenging industry environment in NAND,” Micron’s chief business officer Sumit Sadana said on Thursday during a post-earnings call.
Micron has been cutting back on NAND production, resulting in underutilization which spreads fixed costs over a smaller output, hurting margins.
AI DEMAND PERSISTS
The ramp-up of HBM production to meet strong demand for its AI memory chips from GPU market leaders like Nvidia, has also pressured margins.
Micron forecast third-quarter revenue above estimates, owing to AI-linked strength.
“We see high-bandwidth memory as a key growth driver,” Morningstar analysts said, adding that they expect “continued AI and data center demand.”
