PC and Server Chip Giant Intel (NASDAQ: INTC) shook investors when it released Thursday's first quarter results. While the company exceeded expectations, it reduced the outlook for the full year. Intel now expects total revenue to decline in the current year, mainly due to lower data center chip revenue.
This is obviously bad news for Intel, especially when compared with Advanced Micro Devices Later this year, it could get worse that Micron Technology (NASDAQ: MU) and Western Digital (NASDAQ: WDC) . Here is the reason.
Data Center Issues
Micron manufactures both DRAM chips used as main memory in PCs, servers, and mobile devices, as well as NAND chips used for data storage. The markets for both chips are subject to major corrections, and Micron's sales and profits declined due to significant price reductions.
Western Digital sells hard disk drives and solid state drives and manufactures NAND chips with the acquisition of SanDisk in 201
Intel manufactures NAND chips, and what the company said about the NAND market during its profit bid throws cold water on the idea that prices are nearing its low. Intel's results were impacted by "incremental NAND price weakness" in the first quarter, according to CEO Robert Swan, and the company expects "an increasingly difficult NAND pricing environment" to impact its full-year results.
Exactly how bad is it in the NAND market? Another manufacturer SK Hynix saw a significant 32% drop in NAND's average selling price in the first quarter compared to the previous quarter. In just three months, SK Hynix suffered a price plunge of nearly a third.
In addition to declining NAND prices, overall demand for data center chips is felt Customers are weak as they deal with excess inventories. Intel expects a mid-single-digit sales decline for its data center group this year, after years of driving the company's growth.
"Demand pressure is particularly felt in our data center business, where we are seeing an increase. Continued inventory correction in companies and communication and capacity digestion among cloud service providers, who were driving up consumption in 2018," said Intel CFO George Davis during the win call.
Intel underestimated how bad the situation was, according to Swan: "The data The inventory and capacity consolidation of the centers we described in January is more pronounced than we expected, and the headwind in China has increased, leading to a more prudent IT spending environment. "
Expect results to continue to rise
third quarter ending in May to be crude. In the middle of its forecast, Micron expects revenue and non-GAAP earnings per share to decline 38% and 73%, respectively, year-on-year.
Western Digital will announce the third quarter of its fiscal year results on April 29, and it will not be pretty. The company generates revenue of $ 3.6 to $ 3.8 billion and non-GAAP earnings of $ 0.40 to $ 0.60. In the middle of these bandwidths, sales will fall by 26% and non-GAAP earnings by 86%.
With Intel predicting a further deterioration in NAND pricing, Micron expects data center demand to be worse than expected, and Western Digital may not be out of the woods soon.
Micron chief Sanjay Mehrotra said at the last profit request in March that the company expects data center growth to increase again in the second half of this year as customers' inventories improve. And Intel remains optimistic that demand will improve in the second half of the year. However, the growth of memory chip bit volumes does not mean that prices will recover. If demand continues to lag behind supply, the price environment will remain weak.
While it's impossible to say exactly when the memory chip markets will bottom out, Intel's commentary suggests that memory chip companies like Micron and Western are facing more problems Digital.