Micron rallies after chipmaker beats Street's fiscal 2Q forecasts

Shares of Micron Technology (NASDAQ:MU) jumped Thursday after the chipmaker predicted that demand would return later this year and overcame a “challenging market” to beat Wall Street’s pared-back forecasts for revenue and profit in its fiscal second quarter.

In response, Micron shares added 8% to hit $43.35.

Based in Boise, Idaho, Micron is the second-largest supplier of memory chips globally, offering chips that include DRAM, NAND flash and NOR flash.

Micron’s memory chips are used to store information, in comparison with microprocessor chips made by companies like Intel, which provide computing power.

READ: Baird analyst reiterates Underperform rating on US chipmaker Micron Technology

In the three months until February 28, the chip maker posted net income on an adjusted basis of $1.97 billion, or $1.71 per share. These results represent a drop from its profit of $3.5 billion, or $2.82 per share in the year-ago quarter, but come in ahead of the Street’s consensus, which shifted lower over the quarter, of $1.67 per share.

The chipmaker’s revenue, meanwhile, amounted to $5.84 billion, which was down from $7.35 billion in the corresponding period a year ago, but just slightly ahead of analysts’ projection of $5.82 billion.

On a call with investors, CFO David Zinsner forecast that the chip maker would see revenue of $4.6 billion to $5 billion in its next quarter as well as adjusted earnings of $0.85, plus or minus $0.10. The company’s revenue projections miss analysts’ estimate of $5.3 billion.

News of Micron’s quarterly performance comes as chipmakers face a problem of oversupply due to diminishing demand for smart phones.

Baird analyst weighs in

In a note to investors, Baird analyst Tristan Gerra reiterated Baird’s underperform rating on the stock as well as its $32 price target.

Gerra and his team are forecasting “steady declines” in Micron’s gross margin quarter on quarter throughout 2020, due to “price declines in both DRAM and NAND exceeding Micron’s ability to reduce production costs”.

“[W]e expect the DRAM environment to deteriorate further next year,” Gerra wrote.

But Gerra did also note that pricing declines could be less drastic than expected, and could stabilize in the second half of 2019.

This view was confirmed by Micron CEO Sanjay Mehrotra during a conference call with investors.

“The slowdown in demand is a result of ongoing customer inventory adjustments, as well as software optimizations at some cloud customers,” said Mehrotra on the call.

“We expect growth to resume in the second half of calendar 2019 as we see improvement in our customers’ inventory position,” he added.

As part of a $10 billion share buyback program, Micron bought back 21 million shares of its stock for $702 million during the quarter.

Contact Ellen Kelleher at [email protected]

Story by ProactiveInvestors