• LisaS

Micron (MU), Will Current Down Cycle Inflict More Pain? Or Is It The End?

Micron Technology, Inc. (NASDAQ: MU)

MU will report Q4 2020 on Thursday, September 26, 2019, AMC. DRAM accounts for 70% of MU’s revenue. When MU gave guidance below expectations last quarter, the trends for DRAM and NAND continued lower and most analysts lowered their eps numbers and revenue for MU to the lower end of guidance.

Since then, the prices for DRAM and NAND both look similar, they both rebounded higher in July from the lows hit the end of June and have trended down from this July spike but are clearly above the end of June levels. What this implies is the guidance MU gave should be easily achieved when pricing was clearly higher than how the company guided when it reported the last quarter.

Semiconductor companies are cyclical and usually follow a pattern of turning around typically a quarter before they hit their trough quarter. For MU this quarter they are reporting might be their trough quarter. Many investors are anticipating this because MU is already up +48.4% for the QTR and +52.88% YTD.

Nanya Technology, a Taiwanese DRAM company recently reported DRAM revenue in August rose from July and increased its outlook for DRAM shipments to rise 25% for their next quarter up from their prior guidance of mid-teens. Nanya also said that “DRAM supply-demand dynamics are stabilizing”. Samsung, Western Digital and Lam Research also reported in their opinions the memory industry is near a bottom.

PC demand appears stable and lower memory prices have led to higher memory capacity demand. Cloud CAPEX is expected to pick back up in the last quarter of the year and into 2020. But smartphone demand from Asia is expected to be low and slowing global economies are additional headwinds that will impact business demand for servers and storage.

Guidance Is Key

What matters most is how MU will guide. In the last four quarters that MU reported, the company gave guidance lower than street expectations. This may be the quarter where MU is able to guide above consensus estimates. Implied volatilities on MU options indicate MU may move 7% up or down after this report. In the past when MU has given forward guidance above consensus it has moved an average of 5% higher.

Zacks rates MU a 2 rating currently and it ranks the Semiconductor Memory Industry in the top 1% of performers with a 3 out of 255 segments. Zacks also gives MU a 7.64% Earnings ESP.

Earnings Whispers scores imply 65% beat for earnings and a 64% movement up in price sentiment. Blog Writer currently holds long positions but is looking to exit prior to the earnings call.

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