By Micron Technology Inc. will report fiscal second-quarter earnings after U.S. markets close on Tuesday.
Micron
MU,
-2.24%
is one of the world’s largest producers of memory chips, which were in high demand early in the COVID-19 pandemic. As sales of personal computers and other electronic devices have dried up in the past year, though, the company’s finances and stock have taken a hit.
In-depth: Is Micron selling memory chips for less than they cost to make? That may mean the bottom is near.
What to expect
Earnings: Micron on average is expected to post an adjusted loss of 67 cents a share, more than triple the estimate for a loss of 20 cents a share expected at the beginning of the quarter, according to FactSet’s analysis of estimates from 27 analysts. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for an adjusted loss of 62 cents a share.
Last quarter, Micron executives announced thousands of layoffs in conjunction with the company’s earnings report.
Revenue: Wall Street analysts expect revenue of $3.7 billion on average, according to 30 analysts polled by FactSet. That’s down from their consensus forecast of $4.1 billion at the beginning of the quarter. Estimize contributors expect revenue of $3.8 billion on average.
Analysts, on average, expect DRAM sales of $2.54 billion and NAND sales of $962 million, according to FactSet.
Stock movement: Over Micron’s February-ended quarter, the stock slipped 0.3%, while the PHLX Semiconductor Index
SOX,
-1.21%
rose 4.6% and the S&P 500
SPX,
+0.16%
declined 7.1% over the same period, compared with a 0.1% decrease for the tech-heavy Nasdaq
COMP,
-0.47%.
Over the past several quarters, Micron has been hit-or-miss when it comes to exceeding Wall Street expectations for sales. The previous quarter, which ended in November, was the third period in a row that Micron’s revenue failed to top analysts’ expectations, following a run of beats that went back to December 2018. Micron’s latest quarterly report also marked the first time the company has missed Wall Street’s bottom-line expectations since at least the start of 2018. Dating back to the beginning of 2018, Micron shares have fallen 11 times in the session directly following earnings, while rising nine times.
What analysts are saying
Citi Research analyst Christopher Danely believes the company will report negative gross margins for the first time since 2008 on Tuesday. He also predicts that Micron will fall short of consensus revenue and earnings expectations, while writing down more than $1 billion in inventory.
See also: Micron may need to do ‘material inventory write-downs’ amid supply glut, says exec
The silver lining in that cloud: “The last time Micron had negative gross margins, it marked the bottom in the stock,” he wrote, while maintaining a buy rating and $75 price target.
TD Cowen analyst Krish Sankar also foresees a write-down, though a smaller one than what Danely estimated. He predicts the company will write down $550 million to $850 million in inventory.
Wedbush analyst Matt Bryson said Thursday his “quick and dirty takeaway” from Taiwan is that “most segments in technology remain troubled, with limited forward visibility.”
At the time, he flagged the personal-computer and memory markets as being the worst positioned. Bryson had concerns about Micron, Western Digital Corp.
WDC,
-0.14%
and Seagate Technology Holdings PLC
STX,
+0.60%,
pointing to conversations he’s had about still-low memory demand as hyperscalers slow expansion.
For more: The tech hardware industry is full of red flags, and this analyst sees only one exception
“While we have encountered one-off comments suggesting modest green shoots in various areas, more broadly, commentary around PC demand remains soft with inventories still needing to be worked down,” Bryson said. “Memory demand remains poor, inventories remain high, and pricing declines look to remain at elevated levels into [the second calendar quarter].”
Even so, TD Cowen’s Sankar said “a mix of architecture adjustments at hyperscalers (to accommodate more [Advanced Micro Devices Inc.
AMD,
-1.37%
product] than originally planned) as well as some inventory burn across server has added to the noise generated by Intel’s
INTC,
-0.61%
Sapphire Rapids later than expected launch.”
“Inventory continues to be the highest in cloud/enterprise particularly for NAND (negative for Micron and 2nd derivative negative for Western Digital Corp.
WDC,
-0.14%
) followed by server DRAM,” Sankar said. “We have previously indicated that NAND datacenter inventory is 2x that of DRAM, and that DRAM consumption should resume sequential bit growth starting [in the third calendar quarter] along with pricing improvement.”
Micron shares have fallen 25% over the past 12 months, compared with a 13% decline for the S&P 500 index
SPX,
+0.16%,
a 18% decline by the Nasdaq Composite Index
COMP,
-0.47%,
and a 13% drop for the PHLX Semiconductor Index
SOX,
-1.21%.
Of the 39 analysts who cover Micron, 28 have buy-grade ratings, eight have hold ratings and three have sell ratings. The average price target as of Tuesday morning was $66.20.
