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Micron Gives Disappointing Profit Forecast, Warns of Trade Risks

Ian King

(Bloomberg) -- Micron Technology Inc. gave a disappointing quarterly profit forecast and warned that global trade tensions may prolong a memory-chip industry slump.

The company projected adjusted earnings of 46 cents a share, plus or minus 7 cents, in the fiscal first quarter. Analysts estimated 49 cents a share on average, according to data compiled by Bloomberg. Revenue will be $5 billion, plus or minus $200 million, Micron also said. Analysts projected $4.78 billion.

The chipmaker’s guidance means sales are on course to decline by more than 20% year-on-year for a fourth consecutive quarter. Micron’s stock fell almost 6% in extended trading following the report. The shares closed at $48.60 in New York trading earlier, leaving them up 53% this year.

The Boise, Idaho-based company warned that it’s vulnerable to the U.S.-China trade war and said recent improvements in orders may not be driven by sustainable demand. Micron has been particularly hurt by U.S. export restrictions that limit sales to China’s Huawei Technologies Co.

Micron Chief Executive Officer Sanjay Mehrotra said the company has applied for licenses to ship more products to Huawei, but there have been no decisions on those requests yet. If “restrictions against Huawei continue and we are unable to get licenses, we could see a worsening decline in our sales to Huawei over the coming quarters,” he added.

Recent increases in chip prices and orders led some analysts to predict that the market for computer memory and flash chips was poised to improve. Others worry that those gains won’t last. South Korea’s Samsung Electronics Co. and SK Hynix Inc., two of the largest memory-chip makers, are suffering from a shortage of materials from Japan. That could limit supply, but some customers have been building inventory to mitigate this risk.

“In recent months, we have seen increased demand from customers headquartered in mainland China, some of whom could be making strategic decisions to build higher levels of inventory in the face of increased trade tensions between the U.S. and China, as well as Japan and Korea,” Mehrotra said.

The CEO has told investors that Micron will avoid the boom-and-bust cycles that ravaged the memory-chip business in the past. The market is more stable with fewer suppliers and more diversity in customers.

In fiscal 2019, Micron made less than half of the record $14 billion profit it achieved in 2018. In 2020, analysts on average estimate net income will slump again to about $3 billion, before increasing again in 2021. The company had an annual loss as recently as 2016.

Net income was $561 million, or 49 cents a share, in the fiscal fourth quarter. That was down from $4.33 billion, or $3.56 a share, a year earlier. Revenue came in at $4.87 billion versus $8.44 billion in the same period last year.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Alistair Barr

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