What happened

Thursday is looking like a miserable day to own semiconductor stocks. Last night, after close of trading, computer memory-maker Micron (MU -3.78%) reported a fiscal Q1 2023 loss four times bigger than expected, and added that it also missed on sales. Instead of Wall Street's expected $0.01-per-share loss, Micron lost $0.04 per share in the quarter. Sales were $4.09 billion, just shy of analysts' projected $4.11 billion.  

Micron stock slid 3.9% through 11:10 a.m. EST, and the losses weren't limited to Micron. Falling in sympathy were Intel (INTC -1.79%), Advanced Micro Devices (AMD 0.69%), and Nvidia (NVDA 0.76%) -- down 4.2%, 6%, and 6.9%, respectively.

So what

Micron's sales are melting down, having fallen 47% from Q1 a year ago, and its earnings results were even worse. That "$0.04" loss, you see, was only a pro forma figure. When calculated according to generally accepted accounting principles (GAAP), Micron's losses were actually $0.18 per share -- a complete reversal from one year ago, when Micron earned $2.04 per share.  

To top it all off, Micron's operating cash flow fell 76% year over year, and even a 25% rollback in capital spending wasn't enough to keep it free-cash-flow-positive for the quarter. Micron ended up burning $1.5 billion in cash -- down from positive $673 million in free cash flow a year ago.

CEO Sanjay Mehrotra described the quarter as "challenging," and said the company is "taking decisive actions to cut our supply and expenses." Until global demand for PCs and smartphones revives, however, it's going to be a tough slog. Looking ahead to fiscal Q2, Micron predicts that sales will slump further, to $3.8 billion plus or minus $200 million. Gross profit margins will hover around 7.5% (versus 21.9% in Q1), and the company is looking at a net loss that could be as bad as $0.79 per share.

Now what

This forecast is spooking tech investors across the semiconductor industry, with Intel, AMD, and Nvidia stocks all suffering even more than Micron so far. Given the continuing collapse in semiconductor demand that Micron seems to be predicting, that's not surprising. But there's actually a second reason for Intel, AMD, and Nvidia stocks to be down today, over and above Micron's news.

As Reuters reported late Wednesday, Intel is reorganizing its business "to better compete with Nvidia and Advanced Micro Devices," shifting part of its graphics chip business over to the unit that specializes in gaming PCs and putting the remainder in a division focused on artificial intelligence and data centers.

While it's uncertain how much a simple corporate reorganization will affect Intel's ability to win market share away from AMD and Nvidia, the simple fact that Intel is making this move suggests that AMD and Nvidia can expect increased competitive pressure from Intel in this key area of their business. This promises to threaten profit margins across the board. Given that Micron's report forecasts falling margins anyway, this development probably couldn't have come at a worse time for the other semiconductor companies.

No wonder investors are nervous.