Investor optimism has been riding high that a rebound in memory and other adjacent semiconductor demand is close at hand. One of the biggest names in chip making, Micron Technology (NASDAQ:MU), just reported its 2019 fourth quarter 2019 (the three months ended August 29, 2019), showing that the slump is still here -- but it could be bottoming. That jives with what other chip makers like Broadcom (NASDAQ:AVGO) have said recently.

Rebound or not, though, this particular industry downturn has been much better for Micron than in the past. Things could take a turn for the worse, but it might be time to start thinking a little differently about the digital memory manufacturer.

Charts and graphs getting shared around the globe, illustrating digital data.

Image source: Getty Images.

The year in review

Just to recap what happened the last 12 months, the digital memory business has been plagued with falling demand and oversupply of memory chips for the last year. It's a cyclical business, and this situation crops up every few years or so. When the tide turns, memory chip makers usually suffer lower pricing and decreased profit margins -- even steep losses.

To illustrate how this looks, here is Micron's revenue trend from the last year, plus the forecast for the next quarter.

Period

Revenue

QoQ Change

YoY Change

Q4 2018

$8.44 billion

8%

37%

Q1 2019

$7.91 billion

(6%)

16%

Q2 2019

$5.84 billion

(26%)

(21%)

Q3 2019

$4.79 billion

(18%)

(39%)

Q4 2019

$4.87 billion

2%

(42%)

Q1 2020 expected

$5.0 billion ± $200 million

(1%) to 7%

(39%) to (34%)

QoQ = quarter over quarter. YoY = year over year. Data source: Micron Technology.

My, how fast things change. The much-hoped-for rebound is showing some signs of emerging. Sequential quarter-over-quarter sales declines have halted -- at least for now -- and some meaningful sequential growth might be in the cards during Micron's Q1 of the new fiscal year.

The year-over-year numbers remain ugly, though, and it will take some time to lap those. With sales at some sort of bottom for the time being, profit margins are also far thinner than they were a year ago.

Metric

12 Months Ended August 29, 2019

12 Months Ended August 30, 2018

Change

Revenue

$23.4 billion

$30.4 billion

(23%)

Gross profit margin

45.7%

58.9%

(13.2 pp)

Operating income

$7.38 billion

$15.0 billion

(51%)

Adjusted earnings per share

$6.35

$11.95

(47%)

YOY = year over year. Pp = percentage point. Data source: Micron Technology. 

The big takeaway

Micron is a hotly debated stock, particularly since this cyclical tanking. CEO Sanjay Mehrota announced a big share repurchase program of $10 billion (at the time about 15% of the company's entire market cap) near the peak of the cycle over the summer of 2018. All the while, Mehrota and the rest of Micron's top team talked up their view that the next downturn would be different from times past. That kind of thinking can get investors in trouble. 

But sometimes things are different. Business is dynamic, it changes and adapts, and Micron may really have set itself up well heading into this latest decline. Thus far, it has remained solidly on the profitable side -- both on an unadjusted and adjusted basis -- by cutting operating cost, focusing on more profitable sales deals, and walking away from less advantageous ones, and advancing its technology position (and thus its pricing) to stay ahead of the pack.

MU Net Income (TTM) Chart

Data by YCharts.

Things could, of course, take another turn for the worse and completely blow my argument out of the water. The trade war between the U.S. and China hasn't ended, Micron still can't sell most product lines to Huawei, and the global economy is showing serious signs of a slowdown. But that's one of the reasons I love chip makers like Micron. Since they are cyclical businesses, they offer up insight on the immediate future, as they and their end-customers adjust inventory levels and plan for order fulfillment. It's a great way to get a sneak peak at what economic activity might be right around the corner.

Micron thinks signs of an uptick in demand and subsequent supply shortage are emerging. Challenges remain, but those signs are evidence that things could be about to get better for the semiconductor industry. As for Micron itself, perhaps close to a bottom and still in the black, it might be time to stop thinking about the company like it's 1999, and more like it's 2019.