European chip shares slip after Micron's weak guidance and pricing pressure

Investing.com -- European chip shares slipped following Micron Technology's (NASDAQ:MU ) weak guidance for the upcoming quarter, as analysts at BofA Securities pointed to a continuation of pricing pressures and weak demand, especially in the NAND market. 

Micron’s FQ2 revenue outlook of $7.9 billion, which was much below analysts' estimates, sent shockwaves through the semiconductor sector, and the company’s forecast for lower gross margins added to concerns about the broader chip market's health.

Micron's guidance suggests a 9% sequential decline in revenue, largely driven by ongoing softness in NAND demand, particularly in consumer markets such as PCs and smartphones. 

This came after the company reported weaker-than-expected results in its November quarter, with NAND revenue falling short of estimates and continuing inventory digestion in the consumer segment. 

The company’s gross margin forecast for FQ2 was set at 38.5%, down from 39.5% in the prior quarter, further underscoring the struggles faced by the industry amid weak NAND pricing and demand conditions.

Analysts at BofA Securities noted that Micron’s guidance suggests that the memory chip market could continue to face headwinds well into the first half of 2025, particularly in NAND and DRAM markets. 

The brokerage has lowered its earnings per share estimates for FY25 and FY26, reflecting ongoing pressures from a softer pricing environment and elevated inventory levels. 

Despite strong demand in the data center and high-bandwidth memory (HBM) markets, where Micron sees a promising ramp-up in HBM revenue, the weak consumer-driven segments are expected to weigh heavily on the company's near-term performance.

The outlook is especially concerning for the broader chip sector, as European chip stocks were among those affected by Micron's warning. 

Investors are now bracing for a more challenging period for semiconductor companies, particularly those exposed to consumer electronics markets like PCs and smartphones. 

Micron’s lowered expectations for NAND pricing and its decision to underload production in the coming quarters to help balance supply and demand are expected to have ripple effects across the industry. 

This pressure is further compounded by competition from Chinese rivals, which have intensified pricing competition, particularly in lower-performance memory segments.

Micron’s strategic shift towards high-margin segments, such as HBM and data center products, remains a bright spot for the company.

The company is set to benefit from increasing demand for AI and data center solutions, with its HBM business positioned for growth.

However, as analysts at BofA Securities noted, it will take time for these high-growth segments to fully offset the downturn in NAND and DRAM markets.

The immediate outlook for the sector remains clouded by uncertainties around inventory levels, pricing pressures, and shifting demand patterns. 

Source: Investing.com