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Micron Investors Prepare to Learn the Latest

Harsh Chauhan, The Motley Fool

Micron Technology (NASDAQ: MU) will soon release results for its second quarter of fiscal 2019, and the numbers are expected to be ugly in light of tumbling memory prices. Wall Street is expecting a big decline in the company's top and bottom lines for the quarter, and there's a probability that the memory specialist's decline will be worse than anticipated.

The latest news out of the memory industry hasn't helped Micron's case, putting the brakes on the stock's rally. At the end of February, Micron shares had shot up as much as 30% for 2019, but that enthusiasm has faded in recent weeks. Investors, however, will be hoping that the lull is short-lived and Micron gets back on track when it releases its quarterly results on March 20 showing how the company did through February.

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On shaky ground

Supply chain checks by Susquehanna Financial analyst Mehdi Hosseini have revealed that the prices of DRAM (dynamic random access memory) and NAND memory chips are "tracking below prior expectations" so far this year. Additionally, memory market research firm TrendForce estimates that prices of PC DRAM will fall 30% sequentially during the first quarter of the year, ahead of the 25% drop that was originally anticipated.

That's bad news for Micron as it relies on the DRAM segment for nearly 70% of total revenue. This business had suffered a high single-digit percentage decline during the first quarter of the fiscal year, and the projections suggest that the performance was worse in Q2. The company's second-quarter earnings are expected to drop to $1.71 per share from $2.82 last year on the back of a 20% drop in revenue to $5.9 billion.

However, the company could save the day with a positive outlook.

A potential silver lining

According to Taiwanese DRAM supplier Nanya Technology, as reported by fudzilla.com, the decline in DRAM prices will start slowing down from the second quarter of the year. Nanya says it witnessed higher shipments and an improvement in end-market conditions last quarter. So there's a chance that Micron could issue better-than-expected guidance.

Micron itself had claimed that the inventory adjustments being made by its customers would last for a couple of quarters before normalizing. If that's indeed the case, then Micron should ideally start witnessing an uptick in sales from the next quarter onward. However, that might not be the case if we consider the trends prevailing in the PC and graphics card markets.

Don't get too excited

The PC central processing unit (CPU) shortage and the graphics card oversupply have already caused revenue headwinds for Micron. The bad news is that the problems could persist for longer than expected. For instance, the CPU shortage is expected to extend into the third quarter of calendar 2019, while the GPU oversupply is expected to continue for another six months. Softness in both these markets will affect memory demand.


However, investors shouldn't ignore the fact that the chipmaker is sitting on some solid catalysts that could substantially boost memory demand in the long run. If those catalysts kick in, it will be better for Micron and the memory industry as a whole.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.