Memory chip maker Micron reported better than expected earning and revenues after the close Wednesday. $MU had scaled back its forecasts on DRAM and NAND memory chips. $MU was up 8.6% on the news and is now up more than 37% for 2019.
Memory chip maker Micron reported better than expected earning and revenues after the close Wednesday. $MU had scaled back its forecasts on DRAM and NAND memory chips. $MU was up 8.6% on the news and is now up more than 37% for 2019.
Micron Dram Wafer, Bullish Demand and Prices for 2019?
Micron Technology, Inc. NASDAQ: MU Reported Earnings After Close Wednesday
$1.71 Beat $1.65 EPS But $5.84B missed $5.85 billion forecast in revenue.
Earnings
Micron’s net income fell 51.1% to $1.62 billion and earnings dropped 46.8% to $1.42 per share. Adjusted earnings fell 39.4% to $1.71 per share. Revenue decreased 20.6% to $5.84 billion, due to a decline in demand and a drop in the main business segments. Revenue reflected worse-than-expected pricing trends in DRAM and NAND. DRAM revenue was down 28% on lower bit shipments and a decline in average selling prices.
NAND revenue inched down by 2% as lower average selling prices overshadowed stronger-than-expected bit shipments.is expected to post adjusted earnings of $1.65 a share, down from $2.52 a share expected at the beginning of the quarter.
Micron was expected to post adjusted earnings of $1.65 a share, down from $2.52 a share expected at the beginning of the quarter. Micron forecast $1.65 to $1.85 a share. Estimize calls for earnings of $1.83 a share. In the year-ago quarter, Micron reported earnings of $2.82 a share. Analysts expect revenue of $5.85 billion from Micron, according to FactSet, down from $7.5 billion forecast at the beginning of the quarter, before Micron predicted revenue of $5.7 billion to $6.3 billion. Estimize expects revenue of $6.08 billion. In the year-ago quarter, Micron reported revenue of $7.35 billion.
Micron Technology, Inc. NASDAQ: $MU
Market Reaction After hours $43.63 USD +3.50 +8.72%
Highlights
- Revenue from Mobile rose by 3% on strong growth in managed NAND products.
- Revenue from Compute and Networking plunged by 35% as weak seasonality and pricing dragged volume down.
- Revenue from Embedded declined by 4% due to a decrease in automotive business, weaker pricing and lower DRAM volumes.
- Revenue from Storage decreased by 19% year-over-year
Outlook
Looking ahead into the third quarter, the company expects revenue of $4.8 billion, plus or minus $200 million, and adjusted earnings of $0.85 per share, plus or minus $0.10 per share. Adjusted gross margin is predicted to be in the range of 37% to 40% and adjusted operating expenses are anticipated to be $785 million, plus or minus $25 million.
Diluted GAAP EPS is projected to be $0.51, plus or minus $0.10. Investments in capital expenditures, net of amounts funded by partners, were $2.45 billion for the second quarter of 2019, which resulted in adjusted free cash flow of $988 million.
For fiscal 2019, the company lowered capital expenditures target to about $9 billion from the prior estimate range of $9 billion to $9.5 billion. The company ended the second quarter with cash, marketable investments, and restricted cash of $9.22 billion for a net cash position of $2.99 billion. Micron repurchased an aggregate of 21 million shares of its common stock for $702 million during the quarter in connection with its $10 billion share repurchase authorization.
Heading Into Earnings Ratings:
- 18 analysts have a buy rating on Micron,
- 13 rate it a hold
- 1 recommends selling MU.
- The average price target is $47, an upside of nearly 22 percent from Monday’s close.
In February, Morgan Stanley said DRAM may not even bounce back this year as the market appears “fundamentally oversupplied.” Analysts at KeyBanc Capital forecast flash memory chip shortages from a pullback to oversupply.
Cowen analyst Matthew Ramsay in a note said commentary from Micron and other memory chip makers “indicate to us that many of these problems should be alleviated by the second half of 2019 as certain players scale back capacity/investment and compute chip supply catches up with demand as customer inventories are digested. That said, it may be a bumpy couple of quarters in the meantime for DRAM/NAND”.
Highlights and Outlook
Last year 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.
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.
DRAM Production Expansion a Risk or Opportunity?
Micron expansion of additional clean room spaces in Singapore and Japan. The new Japan space was expected online for production at the beginning of 2019, with Singapore online at the end of 2018. This was all before the cryptocurrency price collapse crushed earnings.
The concern for investors from the expansion was 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 how prices can plunge and with that profits. There lies the risk with expansion, here clearly Micron and others were overestimating demand.
The other supply overhang is Samsung adding to supply with their new production space, the risk is taking advantage of higher demand by Micron and supply pushing down prices dramatically. The hope for the tech giants is the demand for DRAM chips can can ahead 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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