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Micron Stock Tumbles On Grim Chip Sector Outlook After Q3 Earnings Beat

"We saw a significant reduction in near-term industry bit demand, primarily attributable to end demand weakness in consumer markets," said CEO Sanjay Mehrotra.

Updated at 9:34 am EST

Micron Technology  (MU) - Get Micron Technology Inc. Report shares slumped lower Friday after the chipmaker forecast notably weaker-than-expected near term revenues amid a pullback in global demand for computers and smartphones. 

Micron, which posted non-GAAP earnings of $2.59 per share for the three months ending in May on revenues of $8.64 billion -- both of which topped Street forecasts -- noted the China weakness and a broader pullback in global chip demand will clip earnings growth over the coming months.

DRAM revenues, which represent around three quarters of Micron's top line, rose 15% from last year to $6.3 billion, while NAND revenues were up 26%  to $2.3 billion.

Waning demand, however, will likely mean Micron will  begin decreasing the amount of chips it produces in the fall, in order to maintain firm pricing, and said it sees revenues for its fiscal fourth quarter at only 7.2 billion, well shy of the Refinitiv forecast of around $9.1 billion, thanks in part to a 30% hit to Micron's overall China sales.

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"Near the end of fiscal Q3, we saw a significant reduction in near-term industry bit demand, primarily attributable to end demand weakness in consumer markets, including PC and smartphone," CEO Sanjay Mehrotra told investors on a conference call late Thursday. "These consumer markets have been impacted by the weakness in consumer spending in China, the Russia-Ukraine war, and rising inflation around the world."

"Covid control measures in China have exacerbated supply chain challenges for some customers, and the macroeconomic environment is also creating some caution amongst certain customers," Mehrotra added. "Several customers, primarily in PC and smartphone, are adjusting their inventories, and we expect these adjustments to take place mostly in the second half of calendar 2022."

Micron shares were marked 3.8% lower in early Friday trading to change hands at $53.10 each, extending the stock's year-to-date decline to around 43%.

Last month, CEOs from some of the biggest and most influential American companies reiterated their plea to Congress for help in boosting the competitiveness of domestic firms against their rivals in China as part of a lobbying effort by the Semiconductor Industry Association.

"The competitiveness legislation pending in Congress is critical to the U.S. economy, national security, and supply chain resilience," said portions of a letter signed by CEOs of Microsoft  (MSFT) - Get Microsoft Corporation Report, Amazon  (AMZN) - Get Amazon.com Inc. Report and Google parent Alphabet  (GOOGL) - Get Alphabet Inc. Report, as well as more than 100 other corporate bosses. 

"The rest of the world is not waiting for the U.S. to act. Our global competitors are investing in their industry, their workers, and their economies, and it is imperative that Congress act to enhance U.S. competitiveness."

The legislation, which could make it to voting stage before Congress' summer recess, would earmark $52 billion in federal funding to expand domestic chip manufacturing and reduce their dependence on overseas markets for crucial components in the nation's industrial and tech supply chain.