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New Street Research analyst Pierre Ferragu says recent weakness in Micron Technology stock represents an opportunity to buy.
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Micron Technology
stock is trading lower after the memory-chip maker said financial results for the fiscal fourth quarter ending in August will come in well short of previous Street estimates.
While analysts had expected a soft forecast, investors may be surprised by the severity of the miss, which suggests a sharp slowdown in consumer tech-hardware spending that could have ramifications for other chip companies.
Micron saw particular weakness in demand from China. Micron chief business officer Sumit Sadana said in an interview that the company’s revised guidance reflects a 30% reduction in the company’s revenue expectations from China from what it had expected just one quarter ago. That change, he says, represents about a 10% reduction in overall revenue expectations for the quarter.
In late trading, Micron stock is down 3%, at $53.75.
For the fiscal third quarter ended June 2, Micron (ticker:
MU
) posted revenue of $8.64 billion, about in line with the company’s forecast for $8.7 billion, give or take $200 million. Non-GAAP profits of $2.59 a share were a little ahead of the company’s forecast of $2.46 a share, give or take a dime. Non-GAAP gross margin was 47.4%, within the guidance range of 47% to 49%. Wall Street consensus estimates had called for $8.63 billion in revenue and adjusted profits of $2.44 a share.
The big news was the substantial miss on August quarter guidance. Micron is projecting revenue of $7.2 billion, give or take $400 million, with non-GAAP gross margin of 42.5%, plus or minus 1.5%, and non-GAAP profits of $1.63 a share, give or take 20 cents. The Street has been looking for $9.1 billion of revenue and non-GAAP profits of $2.62 a share. Under generally accepted accounting principles, the company earned $2.34 a share.
“Micron delivered record revenue in the fiscal third quarter driven by our team’s excellent execution across technology, products and manufacturing,” CEO Sanjay Mehrotra said in a statement. “Recently, the industry demand environment has weakened, and we are taking action to moderate our supply growth in fiscal 2023. We are confident about the long-term secular demand for memory and storage and are well positioned to deliver strong cross-cycle financial performance.”
In remarks prepared for the company’s earnings conference call, Mehotra called out a softening outlook for both PCs and smartphones. He said the company now sees calendar 2022 PC unit sales to be off nearly 10% from 2021; Micron had previously expected unit sales to be flat. He expects smartphone unit sales to be down in the mid-single digits in calendar 2022, below previous expectations for growth in the mid-single digits.
“Our expectations for calendar 2022 industry bit demand growth have moderated since our last earnings call,” Mehotra said. “Near the end of fiscal Q3, we saw a significant reduction in near-term industry bit demand, primarily attributable to end demand weakness in consumer markets, including PC and smartphone. These consumer markets have been impacted by the weakness in consumer spending in China, the Russia-Ukraine war, and rising inflation around the world.”
He added that Covid-19 control measures in China have exacerbated supply-chain challenges for some customers. “The macroeconomic environment is also creating some caution among certain customers,” he said. “Several customers, primarily in PC and smartphone, are adjusting their inventories, and we expect these adjustments to take place mostly in the second half of calendar 2022. “
Sadana said in an interview that the company continues to see strong memory demand for cloud and enterprise data center applications, but he also notes that customers are holding memory inventory levels above pre-Covid levels. The risk is that in any softening of data center demand in a recession, customers could choose to draw down inventory, which could hurt demand.
Micron said it now sees calendar 2022 bit-demand growth to be below long term rates for both DRAM and NAND—but the company continues to see long-term percentage growth rates of mid-to-high teens for DRAM and high 20s for NAND. The company expects fiscal fourth quarter bit shipments for both DRAM and NAND to be down sequentially from the third quarter.
Micron added that it will slow expansion plans, and now expects fiscal 2023 spending on wafer fab equipment to decline on a year-over-year basis.
Micron said it repurchased $981 million of common stock in the quarter, which follows purchases of about $300 million in the fiscal first quarter and $400 million in the second quarter. Chief Financial Officer Mark Murphy said on the call that the company considers its stock attractive at current levels, and expects to repurchase shares more aggressively in the fiscal fourth quarter. Sadana said the company believes that the stock’s “discount to intrinsic value has increased substantially.”
Micron also boosted its quarterly divided rate by 15%, to 11.5 cents.
Write to Eric J. Savitz at eric.savitz@barrons.com
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