Micron Technology Inc. investors risk getting ahead of themselves with too much optimism about the rest of the year.
On Tuesday, Micron MU, -1.54% reported a better-than-expected fiscal third quarter, as it topped lowered expectations from Wall Street as a glut of memory-chip inventory fueled falling prices after two years of boom times. The company’s fiscal third-quarter revenue fell 39% to $4.8 billion and its gross margins sank to 38.2% of revenue, down from 60.6% in the year-ago period.
The company, though, was cautiously optimistic in its comments about customer demand in the second half of the calendar year.
“We have seen early signs of bit-demand recovery in most DRAM [dynamic random access memory] end markets,” Sanjay Mehrotra, Micron’s president and chief executive, told analysts on a conference call. “Based on our assessment of customer inventory improvement, we anticipate robust bit-demand growth for the industry in the second half of the calendar year compared to the weak demand in the first half.”
Micron’s shares soared nearly 10% at one point during the company’s call, ending about 8.6% higher in after-hours trading.
Also stoking optimism was news that Micron recently began shipping a “subset” of products again to Huawei Technologies, after an internal review concluded that some of its products were not subject to Trump-administration export regulations and restrictions. Executives declined to say what percentage of sales go to Huawei, only that if it had not been for the U.S. government’s ban on selling to the Chinese tech giant, Micron would have “reached the high end” of its revenue guidance.
In addition, Mehrotra said in the important data-center market, “cloud customers are turning the corner on inventories and most are approaching normal inventory levels.”
Chad Kusserow, a fund manager of his family office, said since last quarter’s results — when Micron said it would cut its capital spending and manufacturing to adjust to lower demand — the stock had dropped almost 30%. “So expectations [are] a bit more muted as a backdrop, but [I] think a big pop even from here [is] a little crazy,” he said in an email.
Investors should pay attention to Micron’s higher inventories. The company ended the quarter with about 150 days of inventory on the books, compared with a peak of 100 days in the last downturn, Kusserow noted. He also pointed out that margins are at an 11-quarter low.
Micron also said it would further cut its capital spending but it was too early to give any kind of number. Executives would only quantify the cuts planned for fiscal 2020 as “meaningful” and below the $9 billion it has targeted for fiscal 2019, which ends in August.
Investors were clearly more optimistic after Micron’s comments on the call. But at least one other company, Broadcom Inc. AVGO, -0.96% AVGO, -0.96% AVGO, -0.96% , now a tech conglomerate selling chips, hardware and mainframe software, recently quashed hopes for a better second half. It’s worth holding out for more evidence over the next few weeks to see if the semiconductor rebound is really just around the corner.
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