The current year has been quite disturbing for some of the world's largest chip manufacturers. After widespread supply chain disruptions during the pandemic, they struggled to meet rising demand for chips used in smartphones, data centers and cars.
The supply shortage that has forced some automakers to close their factories is likely to continue, but there are signs it won't get worse, allowing some companies to meet or exceed their financial targets.
Micron Technology (NASDAQ:), the largest U.S. maker of memory chips, yesterday released a revenue forecast for the current quarter that was in line with analysts' forecasts, indicating it will be able to meet demand for are semiconductors that store data in computers and telephones.
Demand was strong in all of the company's markets amid some supply disruptions caused by pandemic-related lockdowns in Malaysia. With strong demand, Micron also reported a price increase for its two main products.
In the fiscal fourth quarter, gross margin will be 46%, plus or minus 1%, and in line with analyst forecasts, Micron said. Micron stocks have lagged the benchmark this year. The stock rose 7% this year from the 18% rise in the main index.
Micron Weekly Chart.
Bullish Forecasts
The main reason behind this underperformance is the concern that the company could escalate costs and demand for chips used in laptops as people go back to the office after more than a year of working from home. There is also an unease that smartphone makers in China have growing unused stocks of components. Yesterday, however, Micron dispelled that impression.
"While the pandemic remains a risk factor, CY21 [calendar year 2021] is set to be a strong year, fueled by the macroeconomic recovery coupled with secular factors, such as AI and 5G, fueling continued demand growth in broad end markets CEO Sanjay Mehrotra said in a statement.
Before Micron's gains, some of Wall Street's largest banks have produced very optimistic notes about the chip industry, citing the global deficit that will lead to thicker margins. Bank of America (BofA) analysts said in a recent note that the market has underestimated how long the rising demand for chips would last.
"The combination of global growth…supply shortages and rising cost/complexity of chip making is likely to extend industry growth to 2H21 [the second half of 2021] and CY22," BofA's analysts said.
New 5G smartphones, advanced cars and gaming products are all being developed simultaneously, increasing demand for chips in 2021 and 2022, BofA added. The bank, which has Applied Materials (NASDAQ:), Marvell (NASDAQ:) and NXP Semiconductor (NASDAQ:) as some of its top industry picks, raised its global forecast for the semiconductor industry as a whole to $532 billion by 2021 — a increase of 21% year-on-year, compared to a previous estimate of a 16% increase.
Starting point
Micron results, released ahead of the second quarter earnings season, show chip demand remains strong and semiconductor companies will continue to benefit from this trend this year.
