Micron Technology

’s

MU

shares have plunged 46.3% year to date, underperforming the

Zacks Computer and Technology

sector and the S&P 500 Index’s declines of 36% and 20.6%, respectively. Though the broader market sell-off has somewhat affected the stock’s performance, the main reasons behind this slump are company-specific.

The company is suffering from dampened memory-chip demand, as customers are adjusting inventories in response to macroeconomic headwinds like supply-chain issues for certain components, negatively impacting bit shipments in the near term, and possible fear of economic recession.

Micron kicked off fiscal 2023 on a disappointing note, registering year-over-year declines of 101.9% and 46.8% in its

first-quarter

earnings and revenues, respectively. The company registered sales declines in almost all of its end markets on a quarter-over-quarter basis. MU cited rapidly weakening consumer demand and substantial customer inventory adjustments across all of its end markets as the reasons behind the dismal quarterly performance.

Such a scenario is likely to further dim the Idaho-headquartered leading semiconductor memory solution provider’s financial performance in the next few quarters. Micron’s second-quarter fiscal 2023 revenue guidance of $3.80 billion (+/- $200 million) indicates a year-over-year loss of 51%. The Zacks Rank #4 (Sell) company’s adjusted loss per share projection of 62 cents (+/-10 cents) indicates a year-over-year decline of 129%.

Micron’s heavy dependence on China is anticipated to keep the company under pressure in the near term. Given that the United States is the largest semiconductor manufacturing country, with China being its biggest importer, the persistent tit-for-tat trade war between the nations poses a threat to the company.

Last week, Micron disclosed a

restructuring plan

to reduce its headcount by 10% throughout 2023 in response to the technology industry slowdown that is affecting employment conditions. The company decided to reduce staff through voluntary attrition or layoffs to prepare for the potential recession and Federal Reserve’s aggressive interest rate hikes. It is, therefore, advisable to stay away from this semiconductor maker in the near term.

3 Semiconductor Stocks to Bet on

Though Micron’s prospects might not appear appealing, there are some other stocks in the semiconductor industry that offer good investment opportunities right now. These stocks have a favorable combination of a

Growth Score

of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy). Also, these stocks have outperformed Micron on a year-to-date basis.

You can see


the complete list of today’s Zacks #1 Rank stocks here


.

Per the Zacks proprietary methodology, stocks with this favorable combination offer good investment opportunities.

STMicroelectronics


STM

is a global independent semiconductor company, which designs, develops, manufactures and markets a broad range of semiconductor integrated circuits and discrete devices used in a wide variety of microelectronic applications, including telecommunications systems, computer systems, consumer products, automotive products, and industrial automation and control systems.

STMicroelectronics is witnessing a growing demand across its segments, with particular strength in the automotive, and factory automation and industrial infrastructure markets. In third-quarter 2022, the company reported 55.5% growth in revenues from the Automotive and Discrete Group segment. This was due to the ongoing electrification and digitalization, increased semiconductor content in legacy auto, and replenishment across the automotive supply chain.

STM currently flaunts a Zacks Rank #1 and has a Growth Score of A. The Zacks Consensus Estimate for the company’s fourth-quarter 2022 earnings improved by a penny to $1.13 per share over the past 60 days, suggesting a 37.8% year-over-year increase. For 2022, the consensus mark for earnings has been revised upward by 9 cents to $4.00 per share over the past 60 days, indicating an 85.2% year-over-year surge.

Microchip Technology


MCHP

develops and manufactures microcontrollers, memory, and analog and interface products for embedded control systems, which are small, low-power computers designed to perform specific tasks. It is one of the fastest-growing providers of 8-bit, 16-bit and 32-bit microcontrollers in the world.

Microchip’s microcontroller business continues to outperform the industry, enabling it to gain a significant market share. The company is increasingly expanding its touch business beyond handsets and tablets in areas such as automotive industrial applications. Its Analog business is one of the largest analog franchises in the market. This Zacks Rank #2 company continues to develop and introduce a wide range of innovative and proprietary new linear, mixed-signal, power, interface, and timing products to fuel growth of the analog business. To further capitalize on this burgeoning business potential, MCHP is developing and introducing a wide range of innovative and proprietary products.

Microchip has a Growth Score of A. The Zacks Consensus Estimate for third-quarter fiscal 2023 earnings is pegged at $1.55 per share, moving northward by 9 cents in the past 30 days. The figure estimates 29.2% year-over-year growth. The consensus mark for fiscal 2023 earnings is pegged at $5.94, which has moved up 4.2% over the past 60 days and indicates 28.9% year-over-year growth.

Taiwan Semiconductor


TSM

is the world’s largest dedicated integrated circuit foundry. As a foundry, the company manufactures integrated circuits for its customers based on their proprietary IC designs using its advanced production processes. TSM’s goal is to be established as one of the world’s leading semiconductor companies by building upon the strengths that have made it the leading IC foundry in the world. The company currently has a Zacks Rank #2 and a Growth Score of A.

The company is focusing on geographically diversifying its production, given the incrementally higher costs associated with building out facilities in new regions. Taiwan Semiconductor opened its first chip fabrication facility or fab worth $12 billion in the United States’ Arizona, which will be operational by 2024. This marks one of the largest foreign investments in the U.S. history and the largest in the state of Arizona. It is currently planning for the opening of its second chip plant in Arizona, raising its investment in the state from $12 billion to $40 billion. The second plant is expected to start production from 2026 onward.

The Zacks Consensus Estimate for Taiwan Semiconductor’s fourth-quarter fiscal 2022 earnings has been revised upward by 2 cents to $1.78 per share over the past 30 days. During the same period, the consensus mark for TSM’s fiscal 2022 earnings has been revised upward by 8 cents to $6.34 per share.

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