What happened
Shares of memory-chip producer Micron Technology (MU 3.06%) fell as much as 6.1% on Wednesday. The company spooked investors when it announced production cutbacks in the fourth quarter due to weak demand for DRAM and NAND memory chips.
So what
Micron issued a press release before Wednesday's opening bell, outlining how the company is adapting to a market that's weaker than expected.
The company has decreased the number of wafer starts by approximately 20%, compared to the fiscal fourth quarter that ended on Sept. 29. Micron is also considering cuts to its planned capital expense investments in manufacturing facilities.
These cuts follow on the heels of the infrastructure investment reductions Micron included in the fourth-quarter report. All told, management now expects production volumes to decrease on a year-over-year basis for the calendar year 2023, while the NAND segment should see a single-digit-percentage uptick.
Now what
Micron is taking these actions in order to avoid overstocking the supply chain, which would almost certainly trigger another price war like the ones this industry has experienced in the past. Some immediate volume cuts are necessary at this point, but CEO Sanjay Mehrotra still sees a bright long-term future for his company.
"Despite the near-term cyclical challenges, we remain confident in the secular demand drivers for our markets, and in the long term, expect memory and storage revenue growth to outpace that of the rest of the semiconductor industry," Mehrotra said.
This stock almost always looks ridiculously undervalued, and today is no different. Micron shares trade at the bargain-bin valuation of 7.6 times trailing earnings. This ain't Micron's first rodeo.
But the stock could still drop much lower before chip prices and share prices can stabilize and head upward again. If you're buying Micron shares on this dip, you should be prepared to continue dollar-cost averaging your way into the stock as the supply-and-demand drama plays out.
