Micron Stock Soars Due to Upbeat Earnings and Guidance

Micron Technology (NASDAQ:MU) stock rose about 5% in extended trading on Wednesday. The chipmaker reported its earnings results for the second quarter of fiscal 2020 after the market bell. Micron stock has risen around 6% in the pre-market trading session today as of 7:00 AM ET. The company recorded better-than-expected earnings and revenues in the February-ending quarter amid the coronavirus outbreak. The company also provided upbeat guidance for the third quarter of fiscal 2020 due to rising demand in data center markets.

Micron stock fell nearly 1.78% on Wednesday and closed at $42.50. At this closing price, Micron’s market capitalization is $47.2 billion. The stock has fallen nearly 19.1% in March and around 21% year-to-date as of Wednesday. Currently, the stock is trading at a discount of 30.5% from its 52-week high of $61.19. The stock is also trading at a premium of 36.5% from its 52-week low of $31.13.

Micron’s Q2 earnings results

Micron reported an adjusted EPS of $0.45 in the second quarter of fiscal 2020. The company’s earnings beat the EPS expectation of $0.37 by 21.6% but declined by 73.7% from the EPS of $1.71 in the same quarter last year. The company’s revenues of $4.80 billion also beat the expectations of $4.69 billion in the quarter. Micron’s revenues fell ~17.8% YoY (year-over-year) from $5.84 billion in the second quarter of fiscal 2019. Notably, the earnings and revenues declined by 6.3% and 6.7%, respectively, from the previous quarter.

Micron’s earnings have been declining for the past six consecutive quarters. Lower revenues have dampened the earnings. A decline in the gross and operating margins due to lower chip memory prices also added to the woes. In the second quarter, while the gross margins expanded by 80 basis points to 29.1%, the operating margins declined by 20 basis points to 11.3%. The company’s inventories rose in the second quarter. Micron has stockpiled its raw materials to continue its production and reduce logistics delays amid the coronavirus outbreak.

Recovery in memory chip demand

Meanwhile, the coronavirus has benefited Micron. Since the pandemic has forced people to stay at home, the need for the Internet’s infrastructure has risen significantly, which increased the demand for Micron’s memory chips. However, the chip demand from smartphone companies continues to fall as shoppers stay away from stores. The company depends on the demand and supply of DRAM and NAND chips.

During the earnings conference call, Micron CEO Sanjay Mehrotra said, “In the data center market, we benefited from strong demand for our products from key cloud and enterprise customers.” The company recorded higher DRAM and NAND revenue in the automotive segment in the quarter. However, DRAM bit shipments declined sequentially due to sluggish seasonal demand and continued CPU shortages in the PC markets.

Micron’s guidance

The company provided higher revenue guidance. Right now, other US companies are slashing or withdrawing their guidance due to the coronavirus havoc. Yesterday, Target (NYSE:TGT) withdrew its guidance for the first quarter and for fiscal 2020.

For the third-quarter results ending in May, Micron expects its revenues to be $4.6 billion–$5.2 billion. Analysts expect the revenue to rise 2.95% YoY to $4.9 billion. The company also expects its adjusted EPS to be $0.40–$0.70 per share in the third quarter. On average, analysts estimated $0.55 per share in the third quarter—a decline of 47.6% YoY. The company thinks that memory chip demand will spike amid rising orders from data center operators. Micron is also working to meet the higher demand for notebooks since many people have to work from home.

While Micron provided optimistic guidance, its peers are concerned about the coronavirus pandemic. Samsung closed its domestic smartphone plant in Gumi in early March. The company also shifted some of its phone production to Vietnam and India amid coronavirus fears in South Korea. SK Hynix expects uncertainty in the memory chip market due to the deadly coronavirus, as reported by Reuters.

In the US semiconductor space, Nvidia (NASDAQ:NVDA) is also optimistic about its gaming and data center business in 2020. Intel (NASDAQ:INTC) expects an improvement in the high-end client CPU demand since more people have to work from home. Recently, Intel suspended its share buyback program due to coronavirus concerns.

Read Is Nvidia Stock a ‘Buy’ amid the Stock Market Crash?, Nvidia Stock Rose 17.16% After Analyst Upgrade and Why Intel Stock Looks Attractive amid the Market Sell-Off to learn more.