Earnings Preview: Micron hopes to ride on improved chip demand in Q4

The business of Micron Technology (NASDAQ: MU) is highly sensitive to fluctuations in the memory chip market as it generates the lion’s share of its revenues from DRAM and NAND memory chips. The market will be closely following the company’s upcoming quarterly report as it would shed light on the demand condition.

The fourth-quarter results are expected to be published Thursday at 4:05 pm ET. The consensus estimate for earnings is $0.48 per share, sharply lower than $3.53 per share reported in the fourth quarter of 2018. The downbeat outlook reflects an estimated 46% fall in revenues to $4.57 billion.

Also Read: Intel stock jumps as it surpasses Q2 estimates

Though chip prices remain on the downside, the rate of decline slowed in the recent quarters and the trend is likely to continue. Complementing it, there has been an improvement in Micron’s inventory position. A sequential gain is very much in the cards, in terms of pricing and profitability. However, uncertainties in the Chinese market, where Micron has several high-profile customers including the controversial Huawei, remains a cause for concern.

Recovery in Cards

Overall, the market is optimistic about demand rebounding in the coming months and into the next year, and most of the analysts following Micron’s stock have upgraded their rating in the last few months. The average recommendation is buy. With market conditions estimated to improve further in the second half of the year, the stock is likely to maintain the current momentum. The de-escalation of the US-China trade war also bodes well for the stock, making it an investment option that cannot be ignored.

Looking Back

In the third quarter, Micron’s earnings and revenues declined in double digits to $1.05 per share and $4.79 billion respectively, from the year-ago period. Making the annual comparison tough, all the four business segments registered sharp declines. Despite contracting for the second consecutive quarter, the results exceeded the market’s projection.

Related: Micron Q3 2019 Earnings Conference Call Transcript

While exuding confidence that overall business conditions would improve during the remainder of the year, the management reduced its capex target for the next year to tackle the demand-supply imbalance.

The Stock

Earlier this month, the stock climbed to the highest level in more than a year, continuing the recovery from the loss it suffered a few months ago. The shares got an additional boost last week after some analysts turned bullish on the upcoming quarterly report, citing increased chip shipments. The stock started 2019 on a positive note and gained about 50% so far.

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