Micron MU posted stronger-than-projected Q3 fiscal 2019 financial results Tuesday. The beats, coupled with news that the chip power began shipping some products to Huawei again, helped lift MU shares. The question for investors is what's next for Micron in the near-term amid a downturn in the broader semiconductor market?
Top & Bottom-Line Overview
Micron has been hit by a significant decline in DRAM and NAND pricing. On top of that, the historically cyclical chip market is in the midst of a downturn that has been exacerbated by the on-going U.S.-China trade war. Demand from giants like Apple AAPL is down, and the U.S. ban on Huawei scared investors since Micron's sales to the Chinese powerhouse had climbed in recent years.
With this in mind, MU reported third-quarter fiscal 2019 revenue of $4.79 billion. This topped our $4.66 estimate, but marked an approximately 38% downturn from the year-ago period's $7.8 billion. Investors should also note that Q3's revenue drop came in much worse than second quarter's 20.5% fall. "While we are seeing early signs of demand improvement, we plan to reduce our capital expenditures in fiscal 2020 to help improve industry supply-demand balance," Micron CEO Sanjay Mehrotra said in prepared remarks.
At the bottom end of the income statement, the company posted adjusted earnings of $1.05 per share, which destroyed our $0.78 per share estimate. Once again this marked a massive fall from the year-ago period's earnings of $3.15 a share.
Micron shares surged 13.34% to close regular trading Tuesday at $37.04 per share. Despite the climb, MU stock rests roughly 37% below its 52-week intraday high of $58.15 per share. And based on the chart below, we can see just how rough the last 12 months have been for Micron stock. But the firm is not alone, with Nvidia NVDA and others down big as well.
Huawei & China
Many on Wall Street were likely in search of reasons to get excited about the downtrodden Micron heading into Tuesday's release. But more than the beats, investors were pleased to hear the company speak positively about Huawei. Micron, like most firms, halted its shipments to the Chinese telecom giant after the U.S. banned exports to the company.
The memory chip behemoth then began to review the products it sells to Huawei after the initial suspension. "Through this review, we determined that we could lawfully resume shipping a subset of current products because they are not subject to export administration regulations and entity list restrictions," Micron's CEO said on the company's earnings call .
"We have started shipping some orders of those products to Huawei in the last two weeks. However, there is considerable ongoing uncertainty surrounding the Huawei situation and we are unable to predict the volumes or time periods over which we will be able to ship products to Huawei."
Despite the uncertainty, the fact that MU has been able to at least continue some of its business with Huawei is a great sign for investors since 13% of Micron's first half 2019 revenue came from the Chinese firm. On top of that, according to S&P Global data, roughly 57% of Micron's total revenue comes from China. Qualcomm QCOM and Intel INTC also both resumed shipments of products to Huawei, according to a new Wall Street Journal report.
Q4 & Fiscal 2020 Outlook
The Boise, Idaho-based firm guided fourth quarter fiscal 2019 revenue in the $4.3 to $4.7 billion range. The mid-point of $4.5 billion is above the current Zacks Consensus Estimate of $4.48 billion, which would still represent a nearly 47% downturn from the prior-year quarter. Meanwhile, MU projects earnings between $0.38 and $0.52 per share. This is significantly below our current $0.59 Zacks Consensus Estimate.
Overall, the company's fiscal 2019 revenue is projected to fall 24.5% from $30.39 billion to $22.93 billion. Plus, the chip firm's fiscal 2020 top-line is expected to sink 13% below our 2019 estimate to $19.95 billion.
MU's earnings picture looks even worse. Micron's full-year fiscal 2019 EPS figure is projected to tumble 49%. On top of that, Micron's adjusted 2020 earnings are expected to sink 40% below our current-year projection. And Micron's earnings estimate revisions have turned even more negative over the last seven days.
Micron is currently a Zacks Rank #5 (Strong Sell) that sports an "F" grade for Momentum in our Style Scores system. Investors should also note that Micron's outlook could change over the next several days as more and more analysts assess its Q3 report and updated guidance.
It is not too hard to imagine MU stock riding a bit of a wave over the next serval days. But based on the uncertainty and dismal outlook, it would seem investors might want stay away from the DRAM and NAND memory chip firm until Micron shows signs of a more sustained comeback.
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