Here’s Why Micron Technology Stock Plunged 25% in June
Actions of Micron technology (MU 0.85%) fell 25.1% in June, according to data provided by S&P Global Market Intelligence. Shares fell sharply earlier this month because investors and analysts are nervous about the semiconductor space right now. And in late June, Micron reported financial results that caused stocks to fall further.
One way to track market sentiment for an entire industry is to look at a sector-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 worry too much about semiconductor stocks in general during June, which meant a friction for Micron shares.
Supply chain challenges and the slowdown in technology space make investors worried about short-term semiconductor demand. And that’s why the whole space shrank in June.
The chart shows two main cases in which Micron shares had lower performance in the semiconductor space: once at the beginning of the month and once at the end of the month. Piper Sandler Analyst Harsh Kumar could be the reason Micron shares fell earlier this month. According to The Fly, Kumar reduced the target price of Micron shares by 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 third fiscal quarter of 2022. And third-quarter results were all but slow. The company had a record quarterly revenue of $ 8.6 billion, up 16% from the previous year. And with that record revenue, it posted a strong net income of $ 2.6 billion.
However, analysts did not like Micron’s advanced guidance, and explained the second drop. Management expects to generate between $ 6.8 billion and $ 7.6 billion in fourth-quarter revenue. In my opinion, there are two conclusions from this guide. First, at the midpoint of the guidance, this represents a 13% year-on-year fall, a rapid reversal of its third-quarter pace. In addition, there is a range of $ 800 million in revenue targeting, which reflects disproportionate uncertainty on the part of management in just the next three months.
If management has this uncertainty about its business prospects in the next quarter, how much more uncertain is it for fiscal year 2023? This uncertainty is one of the main reasons investors are avoiding Micron shares right now.
Micron memory products are subject to a delicate balance between supply and demand. Demand is almost always there to some extent. But sometimes the market is flooded with memory products. When that happens, Micron still sells a lot of units. But units are priced lower, hurting revenue and profit margins.
Looking ahead to fiscal year 2023, Micron’s management is trying to reduce its supply growth so that it can maintain the best possible return. This is not great for growth. But it could help preserve cash flow and allow management to reward shareholders by repurchasing shares and their dividend.