By Wallace Witkowski
Micron Technology Inc. investors are hoping the memory-chip maker’s forecast will provide more color into the unprecedented supply-and-demand dynamics created by two years of COVID-19-related disruption.
Micron /zigman2/quotes/205710729/composite MU -0.88% is scheduled to report its fiscal fourth-quarter results after the market’s close on Thursday.
In case there was any question last quarter on whether the two-year global chip shortage was over, Micron’s fourth-quarter sales forecast that fell $1.5 billion short of the Wall Street consensus at the time answered it.
Micron Chief Executive Sanjay Mehrotra had said back in late June that the company was taking actions to moderate supply growth due a recent weakening in industry demand. Now that we know parts of the chip industry are starting to build up pockets of oversupply, the question naturally becomes: How long before the cycle flips back?
The problem is that the supply-chain issues created by the COVID-19 pandemic were unprecedented, more or less throwing out the playbook on how to forecast chip cycles.
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.
For most of the year, analysts have been fretting over the chip sector . Record-high stock prices before the end of 2022, record sales and sold-out supply until 2023 struck many investors who can remember the 2019 chip glut as red flags.
Morgan Stanley analyst Joseph Moore, who has an underweight rating on Micron, said supply disruptions beginning with the COVID-19 pandemic are “much more impactful than what we have seen historically.”
“As we talk to purchasing managers, the number of ‘golden screw’ parts that are in short supply is declining — but there are still enough issues that in most end markets, pervasive anxiety about supply issues remains the most pressing concern,” Moore said.
“There are demand issues as well, mostly difficult comparisons in consumer markets inflated by work from home, including some consumer electronics markets, PC gaming, and to a lesser extent console gaming,” Moore said.
What to expect
Earnings: Of the 29 analysts surveyed by FactSet, Micron on average is expected to post adjusted earnings of $1.37 a share, down from the $2.82 a share expected at the beginning of the quarter. Micron had forecast fourth-quarter net income of $1.43 to $1.83 a share. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of $1.53 a share.
Revenue: Wall Street expects revenue of $6.73 billion from Micron, according to 28 analysts polled by FactSet. That’s down from the $9.56 billion forecast at the beginning of the quarter. Micron predicted revenue of $6.8 billion to $7.6 billion. Estimize expects revenue of $6.96 billion.
Analysts, on average, expect DRAM sales of $5.1 billion, and NAND sales of $1.88 billion, according to FactSet.
Stock movement: Over Micron’s August-ending quarter, the stock has fallen 23%, while the PHLX Semiconductor Index /zigman2/quotes/210598361/realtime SOX -1.26% has declined 14% over the same period, the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.03% has shed 4%, and the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -0.52% has declined 2%.
Micron has met or exceeded analysts’ expectations every quarter since December 2018, when sales were about 1% lower than the Street’s consensus. Over the 14 quarters since, the stock’s movement has been split, rising seven times the day after earnings, and falling seven.