Western Digital Shares Drop in Response to Micron's Gloomy Earnings Forecast

Shares of Western Digital Corp (NASDAQ:WDC) fell by 4% as the market reacted to a disappointing earnings forecast from industry peer Micron Technology (NASDAQ:MU), raising concerns about diminishing demand in the semiconductor sector. Other companies including Applied Materials Inc (NASDAQ:AMAT), KLA Corp (NASDAQ:KLAC), and Lam Research Corp (NASDAQ:LRCX) also saw their shares decline by 1.7%, 2.1%, and 2.9% respectively during extended trading.

The decline in chipmaker stock prices followed Micron's projection of second-quarter revenue and profits that were below Wall Street's expectations. This forecast, published on Wednesday, indicated lower memory chip prices and weak demand for handsets and PCs, directly impacting earnings forecasts for these companies. In immediate response, Micron's shares dropped by 13.6% in extended trading.

Based in Boise, Idaho, Micron generates most of its revenue from DRAM chips, which are currently facing a market downturn due to low consumer demand and oversupply. These chips are essential in numerous computing devices, including data centers and smartphones. Over the past months, Micron's stock has plummeted over 30% from its June peak due to these adverse market conditions.

Global PC shipments have also witnessed a 1.3% decrease in the third quarter of calendar year 2024, according to reports from Gartner (NYSE:IT). Micron's CEO, Sanjay Mehrotra, commented on the slower-than-anticipated PC refresh cycle and predicted stagnant growth in PC unit volumes for the upcoming year, slightly under previous forecasts.

Despite these hurdles, Mehrotra maintained a long-term positive view regarding AI PC adoption. However, for the forthcoming second quarter, Micron's earnings expectations are set at $1.43 per share, with a margin of 10 cents, which significantly falls short of the analyst consensus of $1.91. The company further estimates its second-quarter revenue at around $7.90 billion, with a margin of $200 million, again lower than the anticipated $8.98 billion.

The wider issue of weak demand for PCs and smartphones, particularly in key markets like China, has resulted in reduced inventory levels and an overabundance of memory chips. While Micron is enlarging its operations with a new mega campus for DRAM chip production in New York and continues to provide flash memory NAND chips for data storage, current market trends continue to overshadow the sector, affecting related businesses such as Western Digital.

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