Micron Hasn’t Memory-Holed the Chip Shortage Just Yet

Micron’s fiscal first-quarter revenue forecast was almost 11% below Wall Street’s prediction.

Photo: Jeremy Erickson/Bloomberg News

As surprises go, Micron Technology’s MU -2.00% disappointing projection hardly qualifies.

The maker of memory chips posted relatively strong results for its fiscal fourth quarter late Tuesday. But its projection of $7.65 billion in revenue for its first quarter ending in November was nearly 11% short of Wall Street’s official forecast, as reflected by consensus projections on FactSet. Yet several analysts had been predicting a shortfall, and the market has been dim on Micron anyway given the cyclical nature of the memory business. Micron’s share price had fallen nearly 16% over the past six months before Tuesday’s report—making it one of the weakest performers in the chip market.

The question now is whether all the bad news is out. Micron’s shares slipped another 2% Wednesday morning. The company conceded on its earnings call Tuesday that PC makers in particular are starting to cut back on memory orders, as shortages of other components hamper their production output. Those shortages are also affecting Micron directly; Chief Executive Sanjay Mehrotra said the inability to procure enough controllers and analog chips will hamper some of Micron’s own production in the current quarter.

But Micron is still more optimistic than others on key parts of the market. Mr. Mehrotra said inventory levels in the data-center segment are in “decent shape.” But market research firm TrendForce predicted last week that server DRAM prices will fall as much as 5% in the calendar fourth quarter, as cloud providers have been procuring “massive amounts” of memory over the past couple of quarters to get ahead of any production shortages. Joseph Moore of Morgan Stanley noted that even if cloud providers don’t start drawing that inventory down, they could use their stockpile “as a lever in price negotiations.”

Still, most of Wall Street is positive on Micron, with about 85% of analysts rating the stock as a buy. At about 8 times forward earnings, the shares are cheap relative to peers and their own history over the last two years. Micron also said it expects record revenue in fiscal 2022—which would mean growth of at least 10% from the just-ended year. But more clarity on the trends in DRAM pricing may be needed to get the stock working again. Even chip makers aren’t immune to the chip shortage.

The number of semiconductors in a modern car, from the ignition to the braking system, can exceed a thousand. As the global chip shortage drags on, car makers from General Motors to Tesla find themselves forced to adjust production and rethink the entire supply chain. Illustration/Video: Sharon Shi

Write to Dan Gallagher at dan.gallagher@wsj.com

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the September 30, 2021, print edition as ‘Micron Forecast Spurs Questions About Chip Sector.’