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Why Micron Stock Slumped Today

By Jon Quast – Sep 30, 2020 at 12:10PM

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The company reported upbeat numbers, but it also raised some warning flags.

What happened

Shares of Micron Technology (MU 2.05%) slumped on Wednesday after the company released results for its full fiscal year 2020. Investors had been hoping for a recovery in the company's semiconductor industry, but there were some warning flags in the release. As a result, Micron stock was down 5% as of 11:30 a.m. EDT.

So what

Fourth-quarter revenue came in at $6.1 billion -- up 24% year over year. Q4 net income was up a whopping 76% to $988 million. Zooming out to look at the full fiscal year, both Micron's revenue and net income were down. Weakness in the semiconductor industry early in the year weighed on results. But a recent uptick in demand has investors hopeful things are set to improve for Micron.

A shocked man looks at his computer screen.

Image source: Getty Images.

Micron has two main memory-product categories: dynamic random access memory (DRAM) and flash memory (NAND). Regarding DRAM memory, Micron management said it expects market conditions to improve during 2021. However, regarding NAND memory, Micron sees a risk of oversupply. Oversupply would result in lower average selling prices, hitting revenue and profits.

Now what

The balance between supply and demand is something all semiconductor stocks face. Micron attempts to balance its own operations, but it can't control what other players in the space do. With statements in its quarterly report, the company is essentially appealing to its competitors to maintain production discipline for the good of all parties.

NAND memory accounted for about 25% of Micron's Q4 revenue, so it's important, but not as important as DRAM memory. But DRAM memory products could see increased production costs in the first half of fiscal 2021, which would hurt cash flow, even if it's just temporary.

In the near term, Micron will also be challenged by issues surrounding Chinese technology company Huawei. Because of ongoing trade disagreements between the U.S. and China, the company had to stop shipping products to Huawei on Sept. 14. Management doesn't anticipate being able to make up the lost revenue for at least six months.

Jon Quast owns shares of Micron Technology. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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