The World Has Changed, but Micron Is Still in Good Shape

Considering the state of affairs the world finds itself in at the moment, memory chipmaker Micron Technology (MU -0.60%) just handed shareholders, the tech community, and the investing world at large some decent news.

Idaho's largest employer posted fiscal second-quarter 2020 earnings (three months ended Feb. 27, 2020) at the top of management's guidance provided a few months ago. That was before COVID-19 started to take a toll on the global economy. And management's outlook was pretty good, all things considered. A lot could change in the coming months, but Micron said business is returning to normal in China, and it sees the rest of the world following suit.

The earnings scorecard

Despite supply chain disruption from China and now some demand breakdown due to coronavirus -- including the closure of manufacturing facilities -- Micron's revenue came in at the top of its guidance provided three months ago. Sales are down from a year ago, as the digital memory industry is still somewhere near the bottom of its cyclical slump, and sales were also down 7% sequentially, though going from the holiday quarter to the first quarter of the calendar year is a normal seasonal slump.  

Pp = percentage point. Data source: Micron Technology.  

The good news though is that even with a global recession now here, Micron is forecasting overall improvements in its business going forward. Fiscal third-quarter guidance called for $4.6 billion to $5.2 billion in revenue, a 2% increase over a year ago (at the midpoint). Adjusted gross margin should be 31% plus or minus 1.5 percentage points, an improvement over Q2 (but still down some eight percentage points from a year ago). Operating expenses should also moderate to about $825 million. All told, management expects adjusted earnings per share to come in between $0.40 and $0.70, a wide range to be sure due to economic uncertainties, but nonetheless a sequential improvement.

Image source: Getty Images.

A new world, a new Micron

To be clear, CEO Sanjay Mehrota did note on the call that supply chain disruption and subsequent orders from customers to plan for further upheaval could be masking greater weakness than expected. But as Micron's numbers are a backward-looking indicator rather than a forward-looking one, that remains to be seen.  

However, the global surge in e-commerce, cloud computing, and other digital businesses due to COVID-19 has at least boosted data center demand and is leading to supply shortages. Mehrota said that's being offset by overall lower demand for consumer electronics and auto. For now, though, the outlook is looking decent considering the world just plunged into economic disaster.  

But this is where Micron is really shining. Investing in new technology, reducing supplier risk, and improving operational efficiency over the last few years mean that the company is still profitable during this steep slump, a stark contrast to times past when booming sales were followed by periods of decline and steep losses. The outlook for profitability remains solid as well, including management's announcement that it would be making $1,000 one-time payments to all of its global employees making less than $100,000 a year. Mehrota said that 68% of its more than 30,000-plus workforce falls into that category.

It's a small drop in the global economic bucket, but Micron is a very different company than it was a few years ago. It used the last uptrend in its cyclical revenue cycle to shore up its balance sheet and make strategic investments, and it is well-positioned to weather the coming storm. A world that was already headed the way of digital just got a sharp shove further in that direction, which also bodes well for the memory chipmaker's prospects. The positive outlook -- at least given the current situation -- could, of course, change quickly, but it's a small piece of good news that the investing world needed.