Micron Technology saw its shares plummet 15% in after-hours trading following a lower-than-expected forecast for its second quarter of fiscal year 2025 (Q2 FY25). While the company exceeded expectations for its fiscal first-quarter earnings, weak demand for consumer-focused products like personal computers and smartphones, coupled with a challenging supply environment, weighed heavily on its outlook.
The bleak forecast spooked investors, pushing Micron’s stock down further in after-hours trading. This marks a steep decline for the stock, which has already dropped by over 30% from its June 2024 peak. Analysts attributed the decline to softer consumer demand and the persistence of a supply glut, which has pressured margins across the semiconductor industry.
Earnings beat expectations but outlook disappoints
The US-based semiconductor company reported first-quarter revenue of $8.71bn, slightly above analysts’ estimates of $8.68bn. The revenue was driven by robust demand for its high-bandwidth memory (HBM) chips used in artificial intelligence (AI) applications. Net income for Q1 FY25 stood at $1.87bn, reflecting a robust recovery from losses posted in the corresponding period of the prior quarter. Earnings per share came in at $1.79, surpassing the $1.73 forecast by analysts.
However, Micron projected Q2 FY25 revenue of $7.9bn, plus or minus $200m, well below the $8.97bn expected by Wall Street. Adjusted earnings per share for the Q2 FY25 are forecasted between $1.33 and $1.53, falling short of analysts’ consensus estimate of $1.97.
Micron’s struggles reflect broader market dynamics. The global demand for dynamic random-access memory (DRAM) chips, which form the bulk of the company’s revenue, remains weak amid sluggish PC and smartphone sales. Research firm Gartner reported a 1.3% decline in global PC shipments in Q3 2024, adding to the challenges for chipmakers like Micron. Similarly, smartphone demand has shown little growth, with the company expecting only single-digit increases in shipments through fiscal 2025.
Despite these challenges, Micron remains optimistic about its long-term growth prospects. CEO Sanjay Mehrotra noted during an earnings call that the company is poised to benefit from growing AI-related demand. Revenue from HBM chips, critical for AI servers, more than doubled sequentially and is expected to remain a key growth driver. Mehrotra highlighted the company’s plans to ramp up production of these high-value chips, aiming to capitalise on increasing adoption in both training and inferencing applications.
“Micron delivered a record quarter, and our data centre revenue surpassed 50% of our total revenue for the first time,” said Mehrotra. “While consumer-oriented markets are weaker in the near term, we anticipate a return to growth in the second half of our fiscal year. We continue to gain share in the highest margin and strategically important parts of the market and are exceptionally well positioned to leverage AI-driven growth to create substantial value for all stakeholders.”
Micron’s strategic focus on high-margin segments such as AI servers and advanced DRAM technology has helped it maintain a competitive edge. However, rising operating expenses, which increased by 15% year-over-year, reflect the company’s substantial investments in growth initiatives. These expenses, coupled with weak near-term demand, may impact profitability if revenue growth fails to meet expectations. The company anticipates modest growth in general-purpose servers and strong momentum in AI servers throughout 2025.
Read more: Micron Technology’s shares rise on $8.7bn revenue forecast for Q1 FY25
