Micron Technology (MU) is falling today after the company reported fiscal first-quarter 2023 results that missed on the top and bottom lines. The company also said it would be reducing its headcount by about 10% next year and suspending bonuses. To top it off, management issued a disappointing forecast for the current quarter.
Micron is struggling from the same supply-and-demand imbalance plaguing other semiconductor makers this year amid an economic slowdown.
Micron CEO Sanjay Mehrotra said the company’s profitability is likely to “remain challenged” through the end of next year, but that revenue and free cash flow could recover later in 2023.
Luckily, we exited our Micron position prior to the earnings announcement. In hindsight, we should have exited Applied Materials (AMAT) then, too.
In addition to MU and AMAT, which we closed today, we took very large losses on Advanced Micro Devices (AMD) and Taiwan Semiconductor Manufacturing (TSM). And now, we’ll be booking a big loss on VanEck Vectors Semiconductor ETF (SMH) as well.
In a word, it’s been brutal.
If you traded SMH and the other chip stocks in a taxable account, hopefully, you will be able to write off the losses against gains you made this year. If you did not trade SMH in a taxable account, you could leave the long call open as a hail Mary. However, I would expect the call to expire worthless at January expiration.
As you know, I remain bullish on the chip sector long term despite short-term demand issues. Potential catalysts in the year ahead include the end of COVID-19 lockdowns in China and a milder-than-expected global recession.
Chip stocks are extremely undervalued and oversold. But how long they will stay that way remains to be seen. It is possible there will be opportunities to trade them in 2023. However, if we do, I will be extremely careful not to overweight us in the sector as we were in 2022.
I know this is not an ideal way to close out the year and offer my sincere apologies. My long-term belief in the fundamentals of the sector kept our cash tied up in these positions for far too long. I am looking forward to putting the capital to better use in 2023 with a greater focus on capital preservation.
Current Stock Price: $200.82
Cost Basis: $46.21
Action: Sell to close the SMH Jan 2023 (1/20/23) 250 Call for around $0.09, but adjust a needed to close today
Loss: $46.12, or $4,612 per contract