​​This article is from Investing.com, follow the WeChat public account: Investing Before the announcement of the earnings report after the market closed on Wednesday, the bullish sentiment of Micron Technology (NASDAQ: MU) was very high. Many institutions have upgraded their rati

​​This article comes from Investing.com, follow the WeChat public account: Investing

Before the announcement of the after-hours earnings report on Wednesday, the bullish sentiment of Micron Technology (NASDAQ:MU) was very high. Many institutions have upgraded their ratings, and Micron's stock price once hit $54.3 yesterday, a new high since July 27, 2018. During the year, Micron has risen by 67%, outperforming the Philadelphia Semiconductor Index by 58%.

Can this financial report confirm Wall Street’s optimistic expectations and support Micron’s stock price to rise further?

Micron Technology and chip stock trends, source: Investing.com

In the first fiscal quarter, Micron’s revenue will still decline by nearly 40%

The rebound in performance will not appear in the latest quarterly results. Data from Yingwei Finance shows that in the first quarter of fiscal 2020 as of the end of November, Micron's revenue is expected to fall 36.8% year-on-year to US$5 billion; earnings per share are expected to be US$0.47, compared with US$2.97 in the same period last year.

According to a TrendForce report, after inventory adjustments in the past five quarters, the DRAM market in the fourth quarter of this year (calendar year) is still slightly oversupplied. As for NAND, prices may rise slightly from a few months ago, but the supporting factors behind it are believed to be temporary, such as the trade dispute between Japan and South Korea that has raised prices.

DRAM (Dynamic Random Access Memory) is memory commonly used in PCs and servers, while NAND chips are flash memory chips used in small devices such as USB drives and data cameras. In 2019, more than 65% of Micron's revenue came from DRAM products, and 29.7% came from NAND products.

Brokerage Wedbush also pointed out that in view of the continued downward trend of DRAM and the mixed fundamentals of NAND, Micron's first fiscal quarter performance will not rise significantly; and considering that Micron Technology has always been cautious about performance guidance, the outlook for the second fiscal quarter is expected It will also perform moderately, or in line with analysts' expectations.

Wall Street generally expects that in the second fiscal quarter ending in February next year, Micron Technology's revenue will fall 17.8% year-on-year to US$4.8 billion; earnings per share will be 43 cents.

Micron Technology quarterly revenue change trend, source: Investing.com

Supply and demand are expected to be balanced in the middle of next year. Will Micron PB return to the six-year median level?

But Wall Street expects the chip industry to gradually recover. For Micron Technology 's fiscal year 2020, the consensus revenue forecast is for a year-on-year decline of 12.0% to $20.6 billion. This decline is an improvement from the 23% decline in fiscal year 2019; moreover, analysts expect revenue to recover after 2021 increase.

The worst days for the chip industry appear to be over. The latest analysis released by TrendForce's DrameXchange research department on December 16 stated that DRAM spot prices have begun to rebound last week. The rebound in the DRAM spot market is caused by a variety of factors. First, market sentiment has strengthened, and the industry is willing to increase inventory levels to lock in prices and ensure inventory supply in line with production plans; second, previously returned components are also being quickly digested. .

As DRAM spot prices rebound, buyers in the contract market also tend to increase inventory. It is expected that contract prices will begin to rise as early as the first quarter of 2020.

Overall, TrendForce expects DRAM demand to strengthen in the first quarter (despite seasonal factors), while the oversupply situation will not reverse until after mid-2020. In terms of

NAND, market research organization IC Insights said that the NAND flash memory market is expected to grow by 19% in 2020, which will create the largest sales growth among 33 integrated circuit products. Developments in solid-state computing, 5G technology, artificial intelligence, deep learning and virtual reality are expected to drive demand for NAND.

This is also in line with the expectations of many Wall Street institutions. JPMorgan Chase reiterated its "overweight" rating and $65 target on Micron Technology last week, saying that as supply and demand return to balance and channel inventories generally decrease, chip prices are expected to recover in the second half of the year; Deutsche Bank Although has lowered its expectations for this quarter due to PC microprocessor supply shortages and weak server demand, it said that "once inventory normalizes in the first half of the year, the supply and demand balance of DRAM in the second half of the year will be more optimistic."

Needham pointed out that the return of supply and demand balance to normal will push the price-to-book ratio (PB) to expand to close to the six-year median value of 2.1 times based on historical data. The current price-to-book ratio of Micron Technology is 1.7 times.

According to FactSet data, among the 35 analysts covering Micron Technology , 18 have an "overweight" rating, 9 maintain a "hold" rating, and 3 have an "underweight" or "sell" rating ” rating, with an average price target of $57.77. Six analysts have increased their price targets on the stock over the past week.

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