For quite some time, the market has been anticipating a cyclical slump in the semiconductor sector, and memory-chip producer Micron Technology stock (NASDAQ:MU) is now proving that it has arrived.
Micron Technology stock (NASDAQ:MU) price has dropped 44% thus far in 2022. How much lower can it go before the market recognizes the next memory chip bull run?
Microns Fiscal 2022 Comes to a Close With a Thud.
Micron’s Q4 fiscal 2022 sales were $6.64 billion, a 23% decrease from Q3 and a 20% decrease from Q4 2021. According to CEO Sanjay Mehrotra, the market for computer hardware has worsened dramatically since the previous financial report three months ago, and what seemed to be a minor sales decline has now become more savage.
Remember that Micron is a very cyclical manufacturing company, and customer demand drops every couple of years or so.
However, Mehrotra and the senior team said that a series of circumstances were causing memory sales to plummet. At the midpoint of the forecast, revenue for the first quarter of fiscal 2023 is estimated to be $4.25 billion, which is nearly 45% lower than the same period last year. Poorer production capacity equals lower profitability, as is typical in these sales cycles. In the first quarter, adjusted profits per share are forecast to be $0.04, down from $2.16 last year.
In other words, at 6.74 times trailing-12-month profits per share as of this writing, Micron Technology stock seems to be undervalued. However, the price-to-earnings ratio will rise when profits decline in the next quarter. If the decline continues long enough, Micron may disclose full-year net losses.
How Much Will Micron Technology Stock Fall?
If Micron’s current forecast for customer demand and inventory difficulties is correct by the middle of the calendar year 2023, the current cyclical slump might endure two or three more quarters. However, as in the past, the market will try to smell out a bottom before it occurs, and Micron Technology stock (NASDAQ:MU) might begin to rally from here even if earnings continue to decline.
This chip factory is in better health than it was during previous downturns, with more than $9.3 billion in cash and short-term investments, another $1.6 billion in long-term investments, and just $6.8 billion in debt.
Situation for Investors
If economic circumstances deteriorate, Micron Technology stock (NASDAQ:MU) might fall more. However, management anticipates an improvement in the sector next year. With long-term secular growth drivers like cloud computing and artificial intelligence, auto industry technology, and 5G mobile networks still in play, Micron might be nearing a bottom in the coming months. If you’re a tech investor, Micron Technology stock (NASDAQ:MU) might be worth dollar-cost averaging into the firm’s current look for a bottom.
Featured Image- Megapixl @ Michaelvi