European Chip Shares Decline Following Micron's Weak Guidance

European chip shares slipped after Micron Technology's (NASDAQ:MU) disappointing guidance for the upcoming quarter. Analysts at BofA Securities highlighted ongoing pricing pressures and weak demand, particularly in the NAND market.

Micron's Financial Outlook

Micron’s FQ2 revenue outlook projected at $7.9 billion was significantly below analysts' estimates, raising concerns about the semiconductor sector. The company's forecast of lower gross margins further emphasized worries about the health of the broader chip market.

Micron's guidance indicates a 9% sequential decline in revenue, driven primarily by decreased NAND demand in consumer markets like PCs and smartphones.

Following a less-than-expected report for its November quarter, with NAND revenue missing estimates and continued inventory digestion in the consumer sector, Micron's gross margin forecast for FQ2 was reduced to 38.5% from 39.5% in the previous quarter.

Market Implications

Analysts from BofA Securities suggest that the memory chip market could face ongoing challenges through the first half of 2025, especially in the NAND and DRAM sectors. This has led to a reduction in earnings per share estimates for FY25 and FY26 due to a soft pricing environment and high inventory levels.

Despite robust demand in the data center and high-bandwidth memory (HBM) markets, the weak performance in consumer-driven segments may significantly impact Micron's near-term results.

Investors are preparing for tougher times for semiconductor companies, especially those linked to consumer electronics like PCs and smartphones. Micron’s expectations for NAND pricing, along with plans to adjust production to better align supply and demand, may create broader industry effects.

The situation is further complicated by intensified pricing competition from Chinese rivals in lower-performance memory sectors.

Micron's strategic pivot towards high-margin segments, such as HBM and data center products, offers a silver lining, particularly as demand for AI and data center solutions increases. However, analysts caution that these growth areas may take time to mitigate downturns in NAND and DRAM markets.

Conclusion

The immediate outlook for the semiconductor sector remains uncertain due to fluctuating inventory, pricing pressures, and evolving demand dynamics.