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Micron Impacted by Soft Demand for Phones and Computers

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Dec. 24 2018, Updated 7:30 a.m. ET

Weak demand for phones and computers

Micron Technology (MU) is struggling with an oversupply of DRAM (dynamic random access memory) and NAND (negative AND) memory chips. The demand is weaker in the smartphone and PC markets. The market glut of chips led to a fall in chip prices, which put an end to a two-year boom in memory chips. SK Hynix and Samsung (SSNLF) also warned investors about weak demand and lower chip prices due to softness in the global demand for mobile and other electronic devices.

NVIDIA (NVDA) and Intel (INTC) are also facing supply constraints. NVIDIA’s guidance was weaker than expected for the December quarter. NVIDIA even halted the production of its mid-range Pascal GPUs.

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Weak demand for Apple’s iPhone models

Apple sees uncertainties related to the demand for its latest iPhone models. Apple has ordered its suppliers to slash the production of its newest iPhones. Sluggish iPhone demand and production cuts are expected to hurt Micron and Western Digital (WDC), which have exposure to Apple’s iPhone business. Lower-than-expected demand for iPhones would lower iPhone memory chip sales and might reduce Micron and Western Digital’s profits over the next two quarters.

Soft earnings and revenue guidance

As a result of falling chip prices, Micron’s revenue and earnings forecast was below analysts’ estimates. The company expects the second-quarter revenues to be $5.7 billion–$6.3 billion—compared to analysts’ estimates of $6.6 billion. Micron expects an EPS of $1.75 plus or minus $0.10 per share—compared to the analysts’ estimate of $2.06 per share.

Micron thinks that the headwind could continue for the next few quarters. As a result, the company plans to reduce its production output.

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