By Jeremy C. Owens
Micron Technology Inc. offered a financial forecast well below what analysts expected Tuesday amid expected declines in the pandemic-influenced price of memory chips, sending shares lower in late trading.
Micron /zigman2/quotes/205710729/composite MU -1.52% on Tuesday reported fiscal fourth-quarter earnings of $2.72 billion, or $2.39 a share, on revenue of $8.27 billion, up from $6.06 billion a year ago. After adjusting for stock-based compensation and other effects, the company reported earnings of $2.42 a share, more than double last year’s $1.08 a share. That performance easily beat the average analyst estimate for expected adjusted earnings of $2.33 a share on sales of $8.23 billion, according to FactSet.
Micron’s fiscal first-quarter guidance did not top analysts’ expectations, however. The chip maker forecast adjusted earnings of $2 to $2.20 a share on sales of $7.45 billion to $7.85 billion. Analysts on average were projecting fiscal first-quarter adjusted earnings of $2.53 a share on revenue of $8.54 billion, according to FactSet.
Micron shares fell 3.6% in after-hours trading after the results were announced Tuesday, but recovered a bit after executives discussed their expectations in a conference call. Shares closed with a 2.8% decline at $73.10 on a rough day for tech stocks.
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Micron has profited from a spike in prices for memory chips amid the COVID-19 pandemic, as can be seen in its results for the full year. Annual sales jumped to $27.71 billion from $21.44 billion in the previous fiscal year, while GAAP profit more than doubled, to $5.86 billion from $2.69 billion the year before.
But analysts and experts believe that party is coming to an end, especially for DRAM, or dynamic random access memory, commonly found in personal computers and larger devices such as servers. As the boom in PC sales slows down, analysts believe that the price increases seen in the market for the past year-plus are also declining.
“We still feel demand outside of PC remains healthy, and we don’t think the DRAM industry has built excess supply, which is the most important factor in maintaining a bullish view,” Raymond James analysts wrote in a preview Monday morning, while dropping their price target on the stock to $100 from $120 but retaining a “strong buy” rating. “That said, we have seen the first signs that capacity spending has increased, and if that persists, it would cause us to become more cautious.”
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Raymond James was not the only shop to bring down its price target on Micron stock — at least 10 analysts decreased their price target on the stock this month, according to FactSet, bringing the average down from more than $120 at the end of July to less than $110, $109.57, on Tuesday.
Micron’s results and guidance may not be the most important factors to monitor, however.
“The real question, in our view, has little to do with Micron results and guidance, and rather concerns whether the expected decline in Q4 memory pricing (particularly for DRAM) is the beginning of a cyclical downturn or rather is a short-lived phenomenon tied to inventory adjustments,” Wedbush analyst Matt Bryson, who has a neutral rating and $105 price target on the stock, wrote last week. “We continue to believe the latter view setup is more probable, but remain on the sidelines into earnings as we look for further datapoints to confirm our bias.”
In a conference call after the results were released Tuesday, Micron Chief Executive Sanjay Mehrotra said he expects the fiscal first quarter to “decline modestly in both DRAM and NAND from very strong levels” in the fiscal fourth quarter because “some PC customers are adjusting their memory and storage purchases due to shortages of non-memory components that are needed to complete PC builds.”
He believes a rebound will come after that, though.
“Bit shipment growth will resume in the second half of the fiscal year and we are planning to deliver record revenue with solid profitability in fiscal 2022,” he said.
“It looks like Micron expects the supply-demand environment, particularly in DRAM, to equalize more quickly than the market/analysts were expecting,” Third Bridge analyst Nicholas Welsch-Lehmann said in an email Tuesday. “Question becomes the extent to which this is a speedbump or the start of a period of extended weakness.”
Micron stock has declined 12.3% in the past three months, as worries about memory pricing have rippled through the industry, but is still up 47% in the past year, as the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.84% has increased 3.6% and 32.6% in those same periods.