Memory chip manufacturer Micron Technology (MU -3.29%) beat analyst estimates across the board when it reported its fiscal third-quarter results on Monday afternoon. Revenue of $5.44 billion was up 13.6% year over year and $130 million ahead of estimates, while non-GAAP (adjusted) EPS of $0.82 beat expectations by $0.06 per share.
While the numbers looked good compared to the previous quarter and the prior-year period, Micron is still in a funk relative to 2018. Revenue was down a whopping 30% compared to Q3 of fiscal 2018 for Micron, and adjusted EPS tumbled 74%. A steep decline in memory chip prices is responsible for the lower revenue and profit.
Micron isn't anywhere close to posting the kind of record-breaking numbers it was reporting back in 2018, but most of the important metrics are trending in the right direction.
Most of what Micron sells are commodity products, which means that prices depend largely on supply and demand. In periods where supply growth outpaces demand growth, prices can plunge and seriously dent Micron's bottom line. When demand outpaces supply, profit margins can improve quickly as prices rise.
In the third quarter, Micron saw pricing improvements for both dynamic random-access memory (DRAM) and flash memory (NAND) chips. Compared to the second quarter, DRAM average selling prices were up a mid-single-digit percentage, while NAND average selling prices were up a high-single-digit percentage. Sales volumes also increased by around 10% for both types of chips.
Total revenue rose in most of Micron's segments. Micron saw strong demand from cloud computing clients, with cloud solid-state drive sales doubling from the second quarter and cloud DRAM sales up significantly. Mobile revenue grew as well, even with the smartphone industry currently in a slump. Micron expects the rollout of 5G to drive an increase in smartphone unit shipments in 2021.
Revenue from PC products increased from the second quarter, although Micron expects unit shipments to decline this year. In graphics, the company has begun shipping graphics memory for the next-generation game consoles set to launch later this year. This growth helped offset a steep decline in revenue from the automotive sector.
For the fiscal fourth quarter, Micron expects to produce revenue between $5.75 billion and $6.25 billion, and adjusted EPS between $0.95 and $1.05. At the midpoints of those ranges, revenue will be up 23% year over year, and EPS will be up 79% year over year. Compared to the fourth quarter of 2018, revenue will be down 29%, and EPS will be down 72%.
Micron's numbers are moving in the right direction, but there's plenty that could go wrong for the memory chip company. With the U.S. economy in recession and the pandemic nowhere close to under control, demand for new game consoles later this year could be depressed. Demand for pricey 5G smartphones may also disappoint, and demand from cloud computing customers could cool off if the economy remains sluggish for too long.
In normal times, it's difficult to predict anything about the memory chip markets more than a few months out. With the pandemic still raging, the industry is now even less predictable. Micron investors should be ready for some surprises over the next year.