Could it be that a bottom has been registered for the cyclical digital memory industry? Maybe, at least according to Micron Technology (NASDAQ:MU). Sales during the chip giant's fiscal 2020 first quarter (three months ended Nov. 28, 2019) edged up 6% from the prior quarter -- although profits still fell and overall results were still well off the year-ago period.  

Fiscal Q2 sales are forecast to be down sequentially again, but that isn't too surprising as it's typically a sleepy time of year for the chip manufacturer right after the holiday season. The good news, though, is that demand for memory chips is showing signs of picking up steam and chip selling prices are moderating, and if this truly is the bottom of the chip cycle, Micron has been able to maintain a positive bottom-line throughout. For investors who have been nibbling on the stock during this downturn, the time to nibble some more is here.  

An illustration of digital data being shared around the globe.

Image source: Getty Images.

Some key numbers in review

Micron's Q1 results came in near the top of its own revenue guidance of $5 billion (plus or minus $200 million) and just above the midpoint of adjusted earnings per share guidance of $0.46 (plus or minus $0.07) provided a few months ago.  

Metric

Three Months Ended Nov. 28, 2019

Three Months Ended Nov. 29, 2018

Change

Revenue

$5.14 billion

$7.91 billion

(35%)

Gross profit margin

26.6%

58.3%

(31.7 pp)

Operating expenses

$848 million

$856 million

(1%)

Adjusted earnings per share

$0.48

$2.97

(47%)

Pp = percentage point. Data source: Micron Technology.  

While (by most measures) the business is still in decline, the big takeaway here is that Micron has remained profitable. Net income adjusted for non-cash items and other one-time items was $548 million -- a far cry from the $3.51 billion a year ago, but still well into the black. Clearly, industry consolidation and Micron's portfolio of products focused on high-end applications (data centers, 5G mobile networks, AI applications) is helping it weather the storm. That hasn't been the case in past digital memory downturns, where soaring profits were followed by losses. The last time that happened was just three years ago in 2016.  

MU Revenue (TTM) Chart

Data by YCharts.

As always, it's the future that counts

Of course, Micron isn't out of the woods yet. Things could still take another turn for the worse for this tech stock. But management did maintain that demand is increasing, and its inventory should start to moderate as a result. With no ramp-up in the U.S.-China trade war (specifically, licenses to restart new product qualifications with Chinese tech giant Huawei, which was blacklisted by the White House in May 2019), this is all good news pointing to an improvement in the year ahead. Another sequential dip in expected Q2 revenues to $4.5 to $4.8 billion may not show it, but the clouds are beginning to clear.  

What's it mean for investors? For one, supply-and-demand levels in memory chips are a decent indicator for where the tech hardware industry is headed overall. Micron's signal that some sort of bottom may have been registered could mean overall demand is headed north in 2020. That's overall good tidings for the company's peers that provide other components for technology.

It also pays to pick up shares a little bit at a time during downturns like the one in 2019. That paid off over the last year, as Micron has rallied 75% this year with just under two weeks left to go, a big rebound from the dismal ending to 2018. If sales and profits turn a corner in the new year, Micron's 17.6 times trailing 12-month earnings valuation -- even after the precipitous fall in the last year -- could be a value. I for one will continue nibbling on the stock.