Micron Technology Inc. is finally accepting the reality of the memory-chip downturn, and investors appear to be breathing a sigh of relief.
On Wednesday, Micron
reported second-quarter earnings, with revenue of $5.8 billion, down 21% from the prior year, citing “worse-than-expected pricing trends” for both dynamic random access memory chips (DRAM) and NAND flash memory, a sharp contrast from the past two years, when it saw revenue and earnings soar amid a memory-chip boom.
Read more about Micron’s strong results in 2018.
Even though its forecast for the fiscal third quarter was actually worse than expected, Micron shares jumped in after-hours trading, surging nearly 5% during the company’s call with analysts. The Boise, Idaho,-based company said it will be cutting back on its production of memory chips, as the industry works through the glut of chips already on the market. In addition, it will cut capital expenditures by $1.5 billion for the rest of the year.
Analysts said cutting back its manufacturing was good for Micron and the overall industry.
“They are reducing capacity utilization by 5%, which is generally perceived as a very good thing for bringing the market back in to balance (hence good for price recovery),” said Mark Newman, an analyst at Bernstein Research, in an email.
Micron’s move to cut its capital spending also was a bit of a shift in stance by CEO Sanjay Mehrotra, who has categorized the current slowdown as a temporary blip in an industry that is no longer cyclical, due to so many different demand drivers. With this move, he showed he is willing to react to big changes in the market, rather than fight the ongoing slowdown.
“Many investors see the slowing wafer starts and lowering capex as a recognition by Micron management that this is a downturn (a mini one, in our view) and that they are focused on reducing supply rather than ignoring it,” said Eric Ross, an analyst at Cascend Securities. In addition, the company is still pointing to a strengthening in the second half of the calendar year, he said.
In what has been the common mantra for semiconductor executives this quarter, Mehrotra and Micron CFO David Zinsner both said they expect the second half of 2019 to be better, even while acknowledging that “visibility remains low and the near-term environment remains challenging.”
All chip makers say the second half will be better, but at least investors know now that Micron’s top executives are prepared to change based on the facts, versus their beliefs.
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