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Memory chip maker Micron reported better than expected earning and revenues after the close Thursday. Revenues jumped 38% year-on-year to a record high of $8.44 billion with diverse demand growth. $MU reversed an intial 4% gain to a 7% loss in after hours. .

 

micron dram

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Micron Technology, Inc. NASDAQ: MU Beat Earnings After Close Thursday

 $3.53 Beat $3.34 EPS AND $8.44 billion Beat $8.25 billion forecast in revenue. 

Earnings 

Micron earned an adjusted $3.53 a share on revenue of $8.44 billion in the period ended Aug. 30 beating analysts expectations of $3.34 a share on sales of $8.25 billion. In the year-earlier quarter, it earned $2.02 a share on sales of $6.14 billion.

Micron Technology, Inc. NASDAQ: $MU

Market Reaction After hours Intially $48.31 +$2.25

Market Reaction After Conference Call $43.80 -2.26 

 “The secular and diversified growth drivers in our industry combined with accelerating pace of transformation of the new Micron form a tremendous catalyst for us to create enduring value for our customers and investors in 2019 and the years ahead,” said Micron CEO Sanjay Mehrotra. 

MU Q4 Earnings

Highlights and Outlook

Micron guided first quarter results below street estimates which was ignored by the market until  CFO Zinsner later clarified during the earnings conference call that the lower guidance projection was due to the expected impact from the 10% tariffs on $200 billion of Chinese goods, which will go into effect on September 24.

Zinsner added. “We are working on steps to mitigate that, that obviously take some time. We have to do some things operationally to get ourselves in a place where it isn’t impactful, and so it will be a quarter or two probably before we start to see some benefit from the improvement there,”.

China is a prime revenue driver for the country, accounting for over 50% of its topline. While it does not make semiconductors in China, numerous assembling and packaging works take place in the country. Therefore, Trump’s tariffs, which will be raised from 10% to 25% by the end of 2018, will likely dent Micron’s gross margins by at least 50 BP.

$MU will now be forced to shift at least a part of its Chinese operations to assembly plants in Singapore. Micron results were driven by strong demand for its DRAM and NAND chips across markets. 

Micron Growth Margin Trend

 DRAM Production Expansion a Risk or Opportunity?

Last quarter Micron announced during it's earnings call plans to expand its production facilities with its fiscal 2018 capital expenditures would be at the upper end of its previous guidance range. This is from the expansion additional clean room spaces in Singapore and Japan. The new Japan space is expected online for production at the beginning of 2019, with Singapore online at the end of this year.

The concern for investors from the expansion is fed by NAND prices becoming evident in DRAM pricing. That is that what happens if demand growth lags supply growth and the high prices reverse? We have seen with NAND hoeprices can plunge and with that profits. There lies the risk with expansion, what if Micron is overestimating demand?

The other supply overhang is Samsung adding to supply with their new production space, the risk is does taking advantage of higher deamnd by Micron and suppy pushing down prices dramatically or can balance be achieved? The hope for the tech giants is the demand for DRAM chips stays ahead of supply with new technology and markets.

That is the risk and the price losses ahead of this report..

Source: Micron, Alphastreet

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