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Micron (MU) Earnings & Revenue Are Expected to Decline Beyond 2019

Benjamin Rains

Micron Technology MU posted worse-than-expected earnings and revenue results last week as the chip firm faces a significant decline in DRAM and NAND pricing, along with reduced demand from the likes of Apple AAPL. Shares of MU briefly climbed in response to the report and Micron stock is up roughly 27% this year. But the chipmaker’s outlook appears rough going forward.

Quick Overview

Micron’s adjusted second quarter fiscal 2019 earnings plummeted from $2.82 per in the year-ago period to hit $1.71 a share, which fell short of our $1.73 Zacks Consensus Estimate. Meanwhile, the Boise, Idaho-based firm saw its quarterly revenue tank 20.5% from $7.35 billion to $5.84 billion. This also came in well below our $5.92 billion estimate.

As we alluded to at the top, Micron had previously reduced its full-year spending plans on the back of lower-than-projected demand in the historically cyclical semiconductor market. On top of that, DRAM and NAND pricing has reportedly fallen by roughly 30% this quarter, according to TrendForce.

Falling memory chip prices seem ready to hut Micron as well as others like Western Digital WDC going forward. Meanwhile, some of the hotter names in the broader semiconductor market, such as Nvidia NVDA and Advanced Micro Devices AMD, have also suffered based on slowing demand from cryptocurrency miners, among other negative factors. “NAND markets remain oversupplied from the acceleration in bit growth, driven by the industry transition to 64-layered 3D NAND,” CEO Sanjay Mehrotra said on the company’s earnings call.

“Although fiscal Q2 pricing came in below our expectations, we are optimistic that demand elasticity and seasonal trends will support improving demand growth in the second half of the calendar year.”

 

 

Outlook

The broader semiconductor market is cyclical, with companies beholden to their customers’ product cycles, capital investments, and more. Plus, demand can track end-market demand, which means everyone from giants like Intel INTC to small firms, can suffer when PC or cell phone sales lag. On top of that, chip oversupply can hurt pricing power—as is currently the case for Micron.

We should note that Micron is one of the largest makers of DRAM and NAND memory chips. DRAM chips are used in personal computer, servers, and more, while NAND flash memory helps fuel the smartphone market and more. With that said, Micron expects demand will rebound in the relatively near future, which makes sense as chips are poised to help fuel the larger technological revolution, from cloud computing to artificial intelligence. But a return to growth doesn’t appear to be on the horizon right now.

Our current Zacks Consensus Estimate calls for Micron’s Q3 fiscal 2019 revenue to tumble nearly 30% to $5.48 billion. Worse still, the company’s fourth-quarter sales are projected to fall by 32.9%. Peeking even further ahead, fiscal 2020’s revenue is projected to come in 5% lower than our current-year estimate that calls for an 18% downturn.

Micron’s outlook appears even worse at the bottom end of the income statement. The firm’s adjusted Q3 EPS figure is projected to drop 60% to $1.26 per share. Meanwhile, Micron’s full-year 2019 earnings estimate is expected to fall roughly 40%, while fiscal 2020’s adjusted EPS figure is projected to come in 27.3% below our current year estimate.

Investors will also notice that Micron’s earnings estimate revision picture has turned far more negative since the company reported its Q2 results on March 20. For example, MU’s consensus earnings estimate for Q3 fell over 11% in just the last seven days.

 

 

Bottom Line

Shares of Micron fell over 2.5% through late afternoon trading Monday to rest at roughly $40.54 per share. Overall, MU stock sits around 37% below its 52-week high of $64.66 per share, which does give the stock room to continue its positive 2019.

But Micron’s negative earnings estimate revision trends help the company earn a Zacks Rank #4 (Sell) at the moment, and clearly its outlook appears brutal over at least the next year and a half.

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