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Will Weakness in Memory Market Hit Micron (MU) Q3 Earnings?

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Micron Technology Inc.'s (MU - Free Report) third-quarter fiscal 2019 results, scheduled to be reported on Jun 25, are likely to bear the brunt of a persistently weak memory market.

Notably, oversupply and lower-than-expected end-market demand are inducing elevated levels of NAND and DRAM inventories. This, in turn, is inducing an unrelenting decline in DRAM and NAND pricing, which is denting Micron’s top line.

Shares of Micron have shed 40.2% of value in the past year versus the S&P 500 Index’s 4.8% rise.

Click here to see how the company’s overall fiscal third quarter performance is likely to be.

Customer Inventory Adjustments — A Key Concern

Micron is hit by an excess inventory with customers in the cloud, graphics and enterprise market. Revenues in the graphics and datacenter market are likely to be adversely impacted by higher-than-normal inventories in gaming cards and waning cryptocurrency-related demand.

Deceleration of demand in the data center market as a result of the ongoing customer inventory adjustments and software optimizations at some cloud customers is a concern. Notably, soft demand from key customers like Intel (INTC - Free Report) and NVIDIA (NVDA - Free Report) is a major headwind to the company.

In graphics, steep customer inventory adjustments in GDDR5 are likely to remain a drag on the upcoming results. Moreover, inventory adjustments are causing a decline in sales in the industrial and consumer markets.

While Micron anticipates DRAM bit shipments to gain momentum in the fiscal third quarter, a modest sequential dip in NAND bit shipments is anticipated.

To tackle tepid DRAM demand among customers, the company announced on the last earnings call that it is idling 5% of its DRAM wafer starts and cutting down the capital expenditure. However, these measures are likely to enable the company to reach a balanced inventory level only in the second half of 2019.

Therefore, it remains to be seen as to what extent the customer inventory levels affect Micron's revenues in the soon-to-be reported quarter.

Zacks Rank & Stock to Consider

Micron currently has a Zacks Rank #5 (Strong Sell).

A better-ranked stock in the broader technology sector is eGain Corporation (EGAN - Free Report) , flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for eGain is currently projected at 30%.

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