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Micron Technology (MU) to Post Q1 Earnings: What in Store?

Zacks Equity Research

Micron Technology MU is scheduled to report first-quarter fiscal 2020 results on Dec 18.

For the quarter, the company expects revenues of $4.8-$5.2 billion. The Zacks Consensus Estimate is currently pegged at $5.01 billion, implying a decline of 36.6% from the year-ago  reported figure.

Earnings are projected to be between 39 cents and 53 cents per share. The consensus mark for earnings stands at 48 cents, implying a decline of 83.8%.

In the trailing four quarters, the company’s earnings surpassed the Zacks Consensus Estimate thrice and missed once, the average positive surprise being 12.9%.

Micron Technology, Inc. Price and EPS Surprise

Micron Technology, Inc. Price and EPS Surprise

Micron Technology, Inc. price-eps-surprise | Micron Technology, Inc. Quote

Factors at Play

Micron’s overexposure to China makes the Sino-U.S. trade war a major overhang on the company.

Moreover, starting mid-May, the company suspended its chip shipments to Huawei, a major customer, in response to the export ban imposed by the U.S. government.

Although it has resumed shipment of selected products to Huawei, the licenses that Micron had applied for with the Department of Commerce did not get approval during the fiscal first quarter.

Even though the Trump administration announced that it is issuing licenses to some companies to resume sales to Huawei, this is unlikely to have had any effect in the quarter. In fact, the company is likely to have witnessed sequential decline in sales to Huawei.

Further, higher mix of lower-margin NAND, coupled with low memory prices and minimal decline in manufacturing cost is likely to have kept margins under pressure.

Also, underutilization expenses associated with the impending acquisition of IM Flash Technologies, its joint venture with Intel INTC, is expected to have been an overhang on the margins.

Also, DRAM revenues are likely to have declined on a year-over-year basis, and remained approximately flat sequentially. The Zacks Consensus Estimate for DRAM revenues is currently pegged at $3.1 billion, implying a 42.2% year-over-year decline and no change sequentially.

Continued weakness in pricing across most market segments is expected to have dampened Micron’s computing and networking business unit as well. The Zacks Consensus Estimate for revenues from this segment stands at $1.9 billion, indicating a decrease of 48.6% from the year-agp reported number.

Nonetheless, Micron is witnessing progress in customer inventory adjustments in most of its end-markets. This might have positively impacted bit demand for DRAM during the fiscal first quarter. A strong uptick in DRAM bit shipments for the cloud, graphics and PC markets is likely to have been a positive in the quarter to be reported.

Moreover, the 1Z DRAM chips, which Micron began to ship in August, are expected to have been a tailwind to its DRAM business in the November quarter. Notably, Micron has surpassed its competitors — Samsung and SK Hynix — in the race to 1Z node production.

Also, NAND industry margins are expected to have bottomed out, and have likely started increasing in the quarter.

What Our Model Says

The proven Zacks model does not conclusively predict an earnings beat for Micron this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Micron carries a Zacks Rank #4 (Sell) and has an Earnings ESP of 0.00%.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
    
Stocks to Consider

Here is a couple of stocks worth considering as our model shows that these have the right combination of elements to beat on earnings in its upcoming release:

Perficient, Inc. PRFT has an Earnings ESP of +2.35% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

EPAM Systems, Inc. EPAM has an Earnings ESP of +1.50% and a Zacks Rank of 2.

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