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When chip company Micron Technology (NASDAQ:MU) announced its first quarter financial report for fiscal year 2019 after the market closed on Tuesday, It will be key to next quarter's performance expectations, because the question now is not whether the chip industry has entered a cyclical downturn, but how long this downturn will last. When
announced its fourth-quarter financial report on September 20, Micron Technology expected first-quarter revenue to increase by 16% to 22% to US$7.9 billion to US$8.3 billion, which is the lowest revenue growth in two years. Earnings per share are expected to be US$2.88 to US$2.88. $3.02. 1 On November 28, Micron Technology updated its expectations, saying that first-quarter revenue will be at the low end of the range, and earnings per share are expected to be higher than the mid-range value of $2.95 (up 7 cents).
Data from Yingwei Finance showed that analysts expected revenue of $8.01 billion and earnings per share of $2.94 for the quarter.
Micron Technology financial report, market source: Investing.com
Although the relatively strong earnings per share forecast implies Micron Technology's strong execution capabilities, proving that the chip company values profits more than market share, but The liquidation of chip inventories will still weigh on stock prices. Micron Technology has fallen more than 47% from its 52-week high of $64.66.
Micron said a major factor in its expected slowdown in revenue growth in the first quarter is that some PC manufacturers are slowing production due to a shortage of CPU chips. This is likely a reference to Intel Corporation's (NASDAQ:INTC) previous tight supply of CPU chips. Micron CEO said that the shortage of CPU chips has mainly affected the PC memory chips produced by the company, and this impact may last until the end of the November quarter (first fiscal quarter).
As for when the chip market will usher in a turning point, Wall Street most expect it to be at least after the first quarter of 2019. The time point given by Nomura analysts is the first half of 2019, and is expected to experience a short-term "hard landing" in the first quarter. The agency pointed out, "Customers are not only exerting severe pressure on chip prices, they are also reducing the number of chips purchased by delaying purchases and consuming existing inventory."
Nomura expects that NAND, which entered the market downturn one year ahead of DRAM, The market will begin to gradually recover in the second quarter of 2019.
MKM Parnters, while affirming the long-term positive prospects of Micron Technology, also admitted that the stock faces short-term challenges in DRAM chip demand and NAND pricing. It is expected that the weak revenue trend will not bottom out until the third fiscal quarter of next year (as of May).
Morgan Stanley, which was the first to make bearish remarks on chip stocks this year, is even more pessimistic. The bank's analyst Joseph Moore speculated that NAND chip inventories may not return to normal levels until the second half of 2019, while the DRAM market will not improve until 2020.
Micron Technology, Samsung , and SK Hynix are the three giants in the DRAM market. The fourth quarter financial report shows that Micron Technology’s DRAM product line revenue accounted for 70% of total revenue, a year-on-year increase of 47%; NAND contributed 26% of revenue, a year-on-year increase of 21%. Analysts expect DRAM revenue to increase by 25% to $5.73 billion in the first quarter; NAND revenue will increase by 5.3% to $1.98 billion.
In addition to demand and supply-side challenges, Micron Technology also faces tariff and regulatory risks. At the end of September, Micron Technology’s CFO said, “In the near future, our gross profit margin will be affected by the 10% tariff imposed by the United States on $200 billion of Chinese goods that will take effect on September 24. We are working hard to mitigate these tariffs in the future. Most of the impact will be in the third to fourth quarters. "
Mizuho Bank expects Micron Technology's gross profit margin to decline by 50 to 100 basis points in the first quarter due to tariffs. In the last quarter, Micron Technology's Non-GAAP gross profit margin was 61.4%.
Last month, the British "Financial Times" reported that China would deepen its antitrust investigation into Micron and two other chip manufacturers, and currently has "a large amount of evidence" proving these chip manufacturers' violations. This further exacerbates the headwinds faced by Micron Technology.
In the short term, Micron's market sentiment is still not optimistic.In the third quarter, a large number of hedge funds liquidated their positions in once high-growth stocks such as Micron Technology. According to historical statistics from Goldman Sachs, since 2002, after a large-scale flight of hedge funds, the performance of high-growth star stocks will lag 60 basis points behind their peers in the following quarter.
Micron Technology stock price trend, market source: Investing.com
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