What happened
Shares of Micron Technology (MU) fell 25.1% in June, according to data provided by S&P Global Market Intelligence. The stock was down big early in the month because investors and analysts are nervous about the semiconductor space right now. And toward the end of June, Micron reported financial results that caused the stock to fall further.
So what
One way to track market sentiment for an entire industry is to look at an industry-specific exchange-traded fund (ETF). In the semiconductor space, there are many options, one of which is iShares Semiconductor ETF. As the chart shows, investors didn't care too much for semiconductor stocks in general during June, which was a drag on Micron shares.
Supply chain challenges and a slowdown in the technology space have investors worried about semiconductor demand in the near term. And it's the reason why the entire space was down in June.
The chart shows two major instances where Micron stock underperformed the semiconductor space: once early in the month and once late in the month. Piper Sandler analyst Harsh Kumar might be the reason Micron stock dropped early in the month. According to The Fly, Kumar lowered the price target for Micron stock 22% to $70 per share, citing a slowdown in consumer electronics. Micron sells memory products used in consumer electronics and is, therefore, more sensitive than most in this regard.
On June 30, Micron reported financial results for the fiscal third quarter of 2022. And Q3 results were anything but slow. The company had record quarterly revenue of $8.6 billion, up 16% year over year. And with this record revenue, it reported strong net income of $2.6 billion.
However, analysts didn't like Micron's forward guidance, explaining the second drop. Management expects to generate $6.8 billion to $7.6 billion in fourth-quarter revenue. In my opinion, there are two takeaways from this guidance. First, at the midpoint of guidance, this represents a 13% year-over-year drop -- a swift reversal of its Q3 pace. Moreover, there's an $800 million range in the revenue guidance, reflecting outsize uncertainty from management in just the next three months.
If management is this uncertain about its business prospects in the coming quarter, how much more uncertain is it for fiscal 2023? This uncertainty is a big reason why investors are avoiding Micron stock right now.
Now what
Micron's memory products are subject to a delicate balance of supply and demand. Demand is almost always there to some degree. But at times, the market gets flooded with memory products. When that happens, Micron still sells plenty of units. But units have a lower price, hurting revenue and profit margins.
Going into fiscal 2023, Micron management is trying to reduce its growth in supply so that it can maintain the best possible profitability. This isn't great for growth. But it could help preserve cash flow and allow management to reward shareholders through share repurchases and its dividend.
