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June 29, 2022, 7:22 a.m. EDT

Micron earnings to provide more clues as to whether chip boom has passed

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By Wallace Witkowski

Micron Technology Inc.’s earnings on Thursday will provide a much-anticipated clue into a problem that has worried Wall Street all year about the chip industry: Whether customers have been hoarding chips during the global shortage.

Micron’s /zigman2/quotes/205710729/composite MU +4.36% May-ending quarter will give analysts an extra month of data to pick through, given the last major earnings report in the sector was Nvidia Corp. /zigman2/quotes/200467500/composite NVDA +4.27% , which had an April-ending quarter. Those earnings revealed the effects of COVID shutdowns in China and lost business because of the war in Ukraine that did not factor for the majority of chip makers that had March-ending quarters.

Last quarter, Micron Chief Executive Sanjay Mehrotra said that sales to data-center customers had eclipsed those to the mobile market, and forecast that data-center sales would outpace the broader memory and storage market over the next decade. Revisions to the CEO’s forecast on Thursday will be closely watched for signs that demand is starting to ease.

The Boise, Idaho-based chip maker specializes in DRAM and NAND memory chips. DRAM, or dynamic random access memory, is the type of memory commonly used in PCs and servers, while NAND chips are the flash memory chips used in smaller devices like smartphones and USB drives. 

Analysts are just starting to see signs that customers may have overbought chips over the past year given short supplies, which would have in turn contributed to record sales for the industry. The thing is, Wall Street has seen this movie before, when the chip industry rode to record sales in 2018 only to find out it was because customers were double- and triple-buying chips to lock in prices before they could shoot any higher. As a result, chip makers were stuck with huge inventories that took months to unload.

For months now, analysts have been fretting over the chip sector following record-high stock prices just before 2022, record sales and sold-out supply until 2023.

Read: Pessimism on chip stocks is hitting a new high, and the money seems to be flowing toward software

Headlining that pessimism going into Micron’s earnings is Morgan Stanley analyst Joseph Moore, who has an equal-weight rating and recently slashed his price target to $56 from $83.

Moore said he is “incrementally cautious around the end-market outlook,” and that “memory markets remain weak from a volume standpoint.”

While Moore appreciates Micron’s cost-structure improvements and the product roadmap, “weakness in PC and smartphone, which was concentrated in China, is growing and spreading both geographically and into server and other markets with order reductions/push-outs popping up recently.”

“There is also a broader shift of spending from goods to services as COVID-related consumer tendencies transition,” Moore said.

What to expect

Earnings: Of the 30 analysts surveyed by FactSet, Micron on average is expected to post adjusted earnings of $2.45 a share, up from the $2.21 a share expected at the beginning of the quarter. Micron had forecast third-quarter net income of $2.36 to $2.56 a share. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of $2.52 a share.

Revenue: Wall Street expects revenue of $8.65 billion from Micron, according to 28 analysts polled by FactSet. That’s up from the $8.1 billion forecast at the beginning of the quarter. Micron predicted revenue of $8.5 billion to $8.9 billion. Estimize expects revenue of $8.73 billion.

Analysts, on average, expect DRAM sales of $6.15 billion, and NAND sales of $2.29 billion, according to FactSet.

Stock movement: Over Micron’s May-ending quarter, the stock has fallen 17%, while the PHLX Semiconductor Index  /zigman2/quotes/210598361/realtime SOX +2.99%  has declined nearly 10% over the same period, the S&P 500 index  /zigman2/quotes/210599714/realtime SPX +1.73% has shed 5.5%, and the tech-heavy Nasdaq Composite Index  /zigman2/quotes/210598365/realtime COMP +2.09%  has dropped 12%.

Micron has exceeded analysts’ expectations every quarter since December 2018, when sales were about 1% lower than the Street’s consensus. Over the 13 quarters since, the stock’s movement has been fairly unpredictable, rising seven times the day after earnings, and falling six.

/zigman2/quotes/205710729/composite
US : U.S.: Nasdaq
$ 65.04
+2.72 +4.36%
Volume: 16.19M
Aug. 12, 2022 4:00p
P/E Ratio
7.41
Dividend Yield
0.64%
Market Cap
$71.75 billion
Rev. per Employee
$753,233
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/zigman2/quotes/200467500/composite
US : U.S.: Nasdaq
$ 187.09
+7.67 +4.27%
Volume: 47.81M
Aug. 12, 2022 4:00p
P/E Ratio
50.21
Dividend Yield
0.09%
Market Cap
$467.72 billion
Rev. per Employee
$1.31M
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/zigman2/quotes/210598361/realtime
US : Nasdaq
3,067.84
+89.15 +2.99%
Volume: 248,669
Aug. 12, 2022 5:16p
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/zigman2/quotes/210599714/realtime
US : S&P US
4,280.15
+72.88 +1.73%
Volume: 2.22B
Aug. 12, 2022 6:27p
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/zigman2/quotes/210598365/realtime
US : Nasdaq
13,047.19
+267.27 +2.09%
Volume: 4.80B
Aug. 12, 2022 5:16p
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