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The sustained decline of memory chip prices has punished Micron Technology (MU) stock, which has fallen some 40% in twelve months. Investors want to know if the bottom has been reached, and whether all of the bad news is already priced into the stock.
The semiconductor giant is set to report first quarter fiscal 2023 earnings results after the closing bell Wednesday. Aside from weak demand and falling prices, the company has also dealt with supply chain headwinds in an already volatile memory market. The company is also dealing with rising interest rates which has likely pressured demand for consumer PCs — a market that Micron relies on. And it doesn’t appear as if things will get immediately better.
Deutsche Bank analyst Sidney Ho recently downgraded Micron, citing significant risks to an oversupply of products in the market at a time when cloud demand has started to “weaken.” The analyst lowered his rating on Micron to Hold, noting, “We believe investor optimism that the business will soon reach a cyclical trough now looks premature.” That said, the stock is attractive relative to its historical trends. The shares are currently trading at roughly 1.2 times book value.
What’s more, management is expected to cut operating expenses by up to 40%, according to Citigroup analyst Atif Malik. These cost cuts should help Micron achieve its profitability goals as it waits for demand and price stability to return. On Wednesday these are among the topics the company will need to discuss, along with issuing positive guidance that instill confidence that memory pricing can rebound in the quarters ahead.
For the quarter that ended August, the Boise, Idaho-based company is expected to break even or lose about one or two cents per share on revenue of $4.12 billion (estimates have been fluctuating lately, making it hard to pin down an exact number). This compares to the year-ago quarter when earnings came to $2.16 per share on revenue of $4.3 billion. For the full year, ending August, the loss is projected to be 6 cents per share, reversing a profit of $8.35 per share a year ago, while full-year revenue of $17.96 billion would decline 41.6% year over year.
With full-year profits still expected to reverse substantially, this underscores the level of cyclicality within memory chip market. Micron is currently the world’s third-largest producer of DRAM chips, while ranking as the fourth-largest producer of NAND memory chips. However, globally both products are in decline. Since the start of the quarter, the consensus earnings estimate has been reduced from expectation of $1.06 per share to 0 per share.
In the fourth quarter, Micron reported revenue of $6.64 billion, which came in 20% lower year over year and missed street estimates by $140 million. The significant decline in revenue impacted the Q4 profit and adjusted gross margins which fell by more than 750 basis points. The Q4 adjusted EPS came in at $1.45 per share which beat the Street estimate by 8 cents. But that’s where the good news ended as the company issued guidance that came in well below revenue estimates by analysts.
During the quarter, the company bought back roughly 13.2 million shares of stock, spending $784 million which totaled 35.4 million share repurchases during the fiscal year of 2022, spending $2.43 billion. Micron ended the quarter with cash, marketable investments, and restricted cash of $11.06 billion, for a net cash position of $4.15 billion. On Wednesday, in order for the stock to rebound, the market will want to see signs of revenue stability and gross margin expansion.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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