The market has been sniffing out a cyclical downturn for the semiconductor industry for a while now, and memory-chip maker Micron Technology (MU 2.55%) is finally confirming that it's here. Micron did report record annual revenue for its recently completed 2022 fiscal year ($30.8 billion, an 11% increase from 2021), but the final quarter of the year (ended Sept. 1) was a dud. Things aren't going to get much better to kick off fiscal 2023.

Ahead of this tumble in sales, Micron's stock price tanked 44% so far in 2022. How much farther will it fall before the market gets wind of the next memory chip bull run?

Micron's fiscal 2022 ends with a thud

Micron's Q4 fiscal 2022 revenue was $6.64 billion, down 23% from Q3 and 20% from Q4 2021. CEO Sanjay Mehrotra said the market for computing hardware deteriorated significantly since the last earnings update three months ago, and what began to look like a mild sales downturn now looks a bit more vicious. Remember, Micron is a highly cyclical manufacturing business, and a pullback in customer demand normally occurs every couple of years or so.

However, Mehrotra and the top team explained that a confluence of events is sending memory sales sharply lower. For the first quarter of fiscal 2023, revenue is expected to be $4.25 billion at the midpoint of guidance -- about 45% lower than the same quarter a year ago. As is typical with these sales cycles, lower manufacturing capacity means lower profitability. Adjusted earnings per share are expected to be just $0.04 in Q1, down from $2.16 last year.

In other words, Micron stock might look cheap at just 6.74 times trailing-12-month earnings per share as of this writing. But as earnings dry up in the coming quarters, the price-to-earnings multiple is going to race higher. If the downturn lasts long enough, Micron could wind up reporting full-year net losses.

A 2023 roadmap to guide your way

Ongoing pandemic-related lockdowns in China, Russia's war in Ukraine, inflation, and the U.S. Federal Reserve's aggressive interest rate hikes are all contributing factors to the current situation. Additionally, there's still a shortage of some chip components. Memory chips are a basic computing system commodity, so while end-device manufacturers wait for other basic parts, memory chips have been piling up in inventory. Thus, these manufacturers are putting new orders from Micron on hold for now.

Micron still sees long-term demand for memory and computing hardware, in general, rising sharply over the next decade (thanks to cloud computing and automotive tech). But near-term production needs to be rightsized for the present situation. Mehrotra said the company will reduce output at its memory fabs. And while the company plans to make $40 billion in U.S. manufacturing investments through the rest of the 2020s, 2023 spending on capital expenditures (property, plant, and equipment) is being pared back for now.

Here's the good news: It's still early, but Micron thinks industry inventory issues will be fixed by the first half of calendar year 2023. By the second half of next year, Mehrotra thinks memory chip demand will be outpacing supply.

How low will Micron stock go?

It looks as if the current cyclical downturn could last two or three more quarters -- assuming Micron's present outlook for customer demand and inventory issues to be fixed by the middle of calendar year 2023. However, as in times past, the market will attempt to sniff out a bottom before it actually happens, and Micron stock could begin to rise from here even as earnings deteriorate.

I'm opting to play it safe for another quarter or two. If the global economy gets worse in the coming months due to rapid interest rate rises, Micron's revenue and profitability could dip much more than they're already expected to. On the upside, as management promised, this is a much more profitable company than in times past. And with more than $9.3 billion in cash and short-term investments, another $1.6 billion in long-term investments, and only $6.8 billion in debt, this chip fab is in better shape than it was during past downturns.

MU Revenue (TTM) Chart

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To be sure, Micron Technology stock could go lower from here if economic conditions worsen. However, management foresees a possible improvement in the industry next year. And with long-term secular growth trends like cloud computing and AI, auto industry technology, and 5G mobile networks still in play, Micron could be close to a bottom in the coming months. If you're an investor in these tech movements, this top microchip stock could be worth dollar-cost averaging into right now as the company tries to find a bottom.