'If the outlook for technology companies is bleak, coupled with the forecast of declining expenses, then it's no wonder investors are selling shares.'
Chip supplier Micron Technology Inc's decision to reduce output and cut capital spending caused the company's shares to shrink, pulling down Wall Street indexes.
It is understood that the company had to take the decision to reduce expenses up to the production to cover the surplus of chips when there was a decrease in demand.
So far Micron is the first chipmaker to underline the issue of declining demand for personal computer products and smart devices earlier this year due to high inflationary pressures.
It turned out to have stunted the planned growth of most chip and electronics makers as they braced for a wave of demand after the end of Covid-19 restrictions.
However, most of them are now forced to bear the loss of surplus products, affecting the end market of the electronics industry as the Philadelphia SE Semiconductor index has shrunk 31% this year.
Back to Micron's surprise decision, the company explained that they had to take that approach to stabilize inventory.
In the meantime, Wedbush Securities analyst Matt Bryson said in his note that supply and budget cuts are a good sign, but the potential for long-term demand could weigh on the technology sector.
Because of that, Bryson advised Micron may have to weigh the perception that component suppliers are creating a bad situation for them and affecting the company's stock.
Additionally, Chuck Carlson of Horizon Investment Services said Micron's decision caused investors to worry and take short-term profits.
As of this writing Micron shares are trading 6.7% lower at $58.87 with a market capitalization of $64 billion.
