Semiconductor equipment stocks struggled Friday after memory-chip maker Micron Technology (MU) slashed its planned spending on new chip gear amid a market downturn. Meanwhile, MU stock rose as investors speculated that Micron shares had bottomed after a dismal fiscal fourth-quarter earnings report.
Micron late Thursday said it is cutting its spending on wafer fabrication equipment by nearly 50% in the current fiscal year. It delivered the news after shocking Wall Street with its weak outlook for its fiscal first quarter.
In the quarter ended Sept. 1, Micron’s sales fell 20% year over year to $6.64 billion while adjusted earnings dropped 40% to $1.45 a share.
For the current quarter, Micron predicted sales would sink 45% to $4.25 billion, with earnings plummeting 98% to 4 cents a share. Micron also is cutting production as customers deal with high inventories of memory chips.
MU Stock Rebounds After Awful Report
In midday trading on the stock market today, MU stock rose 2.3% to 51.18. Through Thursday’s close, MU stock had collapsed 49% from its all-time high of 98.45, reached on Jan. 5.
Semiconductor equipment stocks fell on the capex spending cuts. Applied Materials (AMAT) dropped 1.1% to 83.46. ASML (ASML) sank 1.4% to 421.60. KLA (KLAC) slid 0.9% to 308.06. And Lam Research (LRCX) was flat, near 370.77.
“When the semiconductor industry sneezes, the equipment companies catch a cold,” Robert Maire, president of consulting firm Semiconductor Advisors, said in a note to clients. “Obviously cutting Micron’s WFE (wafer fabrication equipment) capex in half is a big deal for the equipment companies as their revenues can drop faster than their customers.”
Memory chips are usually the first segment impacted in a chip cycle downturn, Maire said. Other chip markets could soon follow.
“The simple reality is that if manufacturers are buying less memory, they are buying less of other semiconductor types,” Maire said. “It’s just that simple.”
At least nine Wall Street analysts cut their price targets on MU stock on Friday.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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