Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Micron Technology Investors Should Brace for Bad Times

By Harsh Chauhan - Sep 24, 2019 at 8:23PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The upcoming earnings report could contain more downbeat news.

Investors have shown confidence in Micron Technology ( MU 5.32% ) stock this year. Micron stock has shot up more than 55% in 2019, as of this writing, as Wall Street is rooting for a second-half recovery in memory demand and a subsequent increase in prices.

Investors will get a better look at how things are going on Sept. 26 when Micron releases its fiscal fourth-quarter report. The company needs to show concrete signs that the memory market is turning around to keep investor enthusiasm.

Frustrated man in front of a chart showing a stock crash.

Image Source: Getty Images.

Micron's financial performance will be far from ideal

Micron Technology's top and bottom lines have been sliding big time thanks to oversupply in the memory industry. Its revenue was down nearly 39% year over year during the fiscal third quarter. Adjusted gross margin fell more than 21 percentage points and earnings per share dropped 66% annually to $1.05 per share.

A similar story is expected to unfold when Micron releases its fourth-quarter earnings. The top line is expected to crash 46% to $4.54 billion, while analysts think earnings per share could shrink to just $0.47 per share as compared to $3.53 per share in the year-ago period. Those numbers are almost in line with Micron's guidance, which calls for $4.5 billion in revenue and $0.45 in earnings per share at the midpoint of its guidance range.

Micron investors shouldn't expect the company to spring a surprise as memory market conditions aren't improving. According to DRAMeXchange, second-quarter 2019 DRAM (dynamic random access memory) revenue was down 9% sequentially. What's more, third-quarter price trends show that quotes for DRAM chips kept sliding thanks to weak end-market demand.

DRAMeXchange also reports that Micron has lost market share to SK Hynix and Samsung on account of the U.S.-China trade war. The chipmaker's second-quarter DRAM market share fell to 20.5% from 23% in the first quarter of the calendar year.

So there's a chance that Micron's quarterly results might not satisfy consensus estimates.

Prepare for a weak outlook

The chipmaker's guidance might also disappoint investors. Consensus estimates suggest that Micron's first-quarter fiscal 2020 revenue will be $4.72 billion. That would be a 40% drop over the $7.91 billion in revenue the company achieved in the prior-year period. Earnings per share are expected to drop from $2.97 per share to $0.44 per share.

The only way Micron could better these estimates is if prices start trending up, but that looks like a long shot considering the end-market conditions.

Smartphone shipments are expected to drop 2.5% this year, according to Gartner, and the market is expected to rebound only in the second half of 2020 thanks to the ramp-up of 5G smartphones.

The PC market won't bring any relief for Micron either, as shipments are expected to contract not only in 2019, but all the way through 2023.

And finally, the server market has continued to decline in recent quarters, as IDC data shows. Server shipments in the first quarter of 2019 were down 5.1% year over year. Alarmingly, the decline accelerated in the second quarter as server shipments fell 9.3% year over year.

If these trends continue in the latter half of the year, memory prices could weaken further and dent any chances of a comeback at Micron. So Micron investors should remain cautious going into the company's quarterly report as gloomy end-market conditions could lead to a weak outlook.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Micron Technology, Inc. Stock Quote
Micron Technology, Inc.
MU
$88.47 (5.32%) $4.47
Gartner, Inc. Stock Quote
Gartner, Inc.
IT
$315.13 (0.92%) $2.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
656%
 
S&P 500 Returns
144%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.