Micron Technology (NASDAQ:MU) CEO Sanjay Mehrota said on the company's fiscal 2020 fourth-quarter earnings call this week that "COVID-19 presented a real-life stress test of the new Micron's resilience."

Based on the results of the latest earnings report, Micron passed.

Unlike in many times past, the memory chip manufacturer remained profitable during its last downturn, and the next up-cycle is underway. There's still time to jump aboard.  

Someone in lab suit holding semiconductor chip

Image source: Getty Images.

Wrapping up the fiscal year on a high note

During its Q4 fiscal 2020 (the three months ended Sept. 3, 2020), Micron's revenue surged 24% year over year to $6.06 billion -- just above the midpoint of guidance provided a few months prior. Adjusted earnings per share also came in just above the midpoint of guidance to $1.08, an increase of 93% from last year as profit margins recovered with steadily rebounding sales.  

While Micron's solid report card didn't exactly come as a surprise, it was nonetheless a positive end to the fiscal year. There's work to be done to get back to record sales and profits, but 2020 at least brought an end to a year-and-a-half-long memory chip industry slump and a return to growth.

Metric

Full-Fiscal Year 2020

Full-Fiscal Year 2019

Change

Revenue

$21.4 billion

$23.4 billion

(9%)

Adjusted gross profit margin

31.3%

46.9%

(15.6 pp)

Adjusted operating expenses

$3.30 billion

$3.17 billion

4%

Adjusted net income

$3.24 billion

$7.31 billion

(56%)

Pp = percentage point. Data source: Micron Technology.  

Digital data storage is a secular growth trend

Central to Micron's resurgence in the last year has been increased demand for memory chips from high-end computing. Specifically, Mehrota said cloud computing and 5G mobile network rollout were key drivers to sales returning to year-over-year expansion. Mehrota also indicated Micron has been riding NVIDIA's (NASDAQ:NVDA) coattails as graphics processing units (GPUs) have been in high demand this year. Memory is integral to a GPU's design, and Micron is supplying NVIDIA for its new lineup of GPUs -- which are increasingly being used not just in gaming PCs, but also in data centers to enable higher-order computing power.  

Continued growth in cloud is expected in 2021, and a recovery in struggling industries like smartphones is also in the works. And a research note from Citigroup indicates Amazon (NASDAQ:AMZN) could help Micron's cause too. Amazon's AWS cloud computing segment apparently placed an order for DRAM memory chips for the 2020 holiday season equivalent to 6% of global demand. In what is a typically a seasonally sleepy period for Micron, that could be significant.  

However, Mehrota indicated there will be some headwinds in first-quarter fiscal 2021 (which corresponds with calendar year Q4 2020). First, IT spending at an enterprise level remains weak, as it has been all year. And second, another U.S. government restriction on sales to Chinese tech giant Huawei went into effect Sept. 14th. At 10% of sales, losing Huawei again hurts, and Micron didn't have much time to shift its supply chain to accommodate.  

Nevertheless, it seems the positives and the negatives will offset each other. Based on guidance, it should equate to roughly flat year-over-year results during Q1 2020, with some of the headwinds easing in the second quarter. The outlook is for revenue of $5.2 billion plus or minus $200 million (up just over 1% from last year at the midpoint) and adjusted earnings per share of $0.47 plus or minus $0.07 (down 2% from last year at the midpoint).

It isn't the rosiest of outlooks to kick off a new fiscal year, but the new Micron is nonetheless passing the 2020 stress test as it focuses on return on investment above all else. In times past, the memory chip market was instead dominated by production pushes to try to take market share. Shares trade for 17 times trailing 12-month adjusted earnings, a real value if the company can execute on its expected rebound in 2021.