Global semiconductor outlook for 2019
The US-China trade war accelerated in May as the two countries hiked tariff rates and the US banned firms from doing business with Huawei, one of the biggest customers of the tech industry. The World Semiconductor Trade Statistics lowered its November 2018 estimate of a 3% YoY decline in global semiconductor revenue in 2019 to 12% in May. It estimates memory chip revenue to fall 30.6% YoY in 2019.
The semiconductor industry, including Micron Technology (MU), has been banking on a demand recovery in the second half of the year. But the above estimates that factor in the trade war developments indicate that the slowdown will continue in the second half.
Impact of semiconductor slowdown on Micron
Micron will take the biggest hit from the above semiconductor downturn, as it is a pure-play memory chip maker and memory is inside every device that deals with data. Micron saw weak demand in the first half of calendar 2019 as its semiconductor customers made inventory adjustments to absorb the excess inventory created due to weak holiday season demand.
Back in March, when Micron reported its second-quarter earnings, it estimated demand to resume in the second half of 2019 as customers improve their inventory position and prepare for holiday season demand. However, the trade developments in May have dampened the hopes of a revival in end demand in the second half.
Micron’s back-half growth depends on customers’ inventory position. However, the recent data points by chip companies show that inventories are too high and they will be focusing on reducing these inventory levels instead of rebuilding them as the second-half demand remains subdued.
NVIDIA, Broadcom, and Micron
For instance, Micron’s graphics customer NVIDIA (NVDA) reported a decline in data center demand as its customers move from building new capacity to absorbing existing capacity. The company has refused to provide full-year revenue guidance amid demand uncertainty. This means that it expects to report weaker fiscal 2020 revenue than its previous estimate of $11.2 billion, which was down 5% YoY.
In mid-June, Broadcom (AVGO), another Micron customer, reduced its full-year fiscal 2019 revenue guidance by 7%, or $2 billion, to $22.5 billion largely due to the direct and indirect impact of the Huawei ban.
The above statistics indicate that Micron will report weak guidance for fiscal 2019 in its upcoming earnings on June 25.