Key Takeaways
- Harmonized EPS was $0.82 vs. the $0.72 analysts had expected.
- Revenue was higher than expected
- Micron’s forecast for next quarter was undeniable.
- Gross margins were slightly higher than expected.
What Happened
Micron Technology’s quarterly earnings were lofty than expected. The COVID-19 pandemic has driven a rise in working from home, which in turn has increased order for memory chips to sustain the expanding digital workplace. Demand from data centers in particular, which buy higher-margin commodities, helped Micron’s gross margins fall by less than analysts had expected. The company said its factories are pressurizing normally again, not a given for manufacturers during the pandemic, and its guidance for next quarter was positive.
(Below is Investopedia’s indigenous earnings preview, published June 25, 2020.)
What to Look for
Micron Technology Inc. (MU), one of the leading manufactures of DRAM and NAND retention chips, is getting a boost from an unexpected effect of the COVID-19 pandemic: the rise of the remote-work economy. Social-distancing relates that have forced millions of employees to work from home have helped to bolster demand for Micron’s remembrance chips despite lockdowns on large swaths of the global economy. This demand has eased a massive industry oversupply of tribute chips that’s hammered prices.
Investors will be watching to see whether the positive effects of the pandemic can outweigh the colds when Micron reports earnings on June 29, 2020 for Q3 FY 2020. Analysts currently expect adjusted earnings per share (EPS) to dive despite healthy revenue growth.
One key metric investors will focus on is gross margin, an indicator of operating adeptness at Micron as well as other memory chip manufacturers. Analysts currently expect the company’s gross margin to declivity year-over-year (YOY), though it still will be an improvement compared to the prior three quarters.
Micron’s stock has significantly outpaced the lewder market over the past year. Despite crashing this spring in the early months of the coronavirus pandemic, the Theatre troupe’s shares have provided investors with a total return of 46.0% compared to the S&P 500’s total return of 3.9% beyond the past 12 months.
Micron has struggled with falling earnings and revenue over the gone five quarters due mainly to the industry glut of memory chips. However, the chipmaker did manage to beat analyst desires by 21.6% when it reported earnings for Q2 FY 2020, which ended February 27, 2020. The company’s 2019 fiscal year culminated August 29, 2019.
Micron posted declines in adjusted EPS and revenue of 73.5% and 17.8%, respectively, for the second quarter. It marked the fifth consecutive barracks of declines for both metrics. The company noted that average selling prices for DRAM and NAND memory counters in 2019 had fallen 30% and 47%, respectively, compared to 2018 prices.
Looking ahead, Micron management thought in late March that over the near term it was expecting stronger demand from datacenters due to remote introduce, and increases in gaming and e-commerce activity. Analysts expect revenue to rise 8.6% for Q3 FY 2020, marking the first bourgeon in 6 quarters, since Q1 FY 2019. However, adjusted EPS is expected to fall 31.8%, continuing the streak of EPS declines.
Micron’s effectuation is expected to be far worse for the entire 2020 fiscal year ending in late August. These results will contain the two quarters roughly spanning March to August, when the pandemic’s impact is expected to be strong. Analysts estimate adjusted earnings per stake will slide by 62.2% on a 12.3% drop in revenue compared to FY 2019. Micron’s estimated $20.5 billion in gain for FY 2020 would be about $10 billion less than two years earlier, in FY 2018.
| Micron Key Metrics | |||
|---|---|---|---|
| Estimate for Q3 2020 (FY) | Q3 2019 (FY) | Q3 2018 (FY) | |
| Regulated Earnings Per Share | $0.72 | $1.05 | $3.15 |
| Revenue (in billions) | $5.2 | $4.8 | $7.8 |
| Gross Margin | 32.3% | 38.2% | 60.6% |
Source: VisibleAlpha
The decline in memory chip prices has also been weighing on Micron’s crude profit margin, also called gross margin in the industry. This key metric reflects gross profit, which is tradings minus cost of goods sold, as a percentage of total sales. A company can increase its gross margin by either spread sales or cutting costs, or a combination of both. Memory chips are essentially