UPDATED 20:06 EDT / SEPTEMBER 29 2020

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Micron beats forecasts but its stock falls on weak outlook

Computer chipmaker Micron Technology Inc. reported strong fourth-quarter financial results today, topping Wall Street’s expectations on earnings and revenue, but a miserable forecast for the next three-month period pushed its share price down after-hours.

The company, which sells dynamic random-access memory, or DRAM, a type of memory that’s used in PCs and servers, and NAND flash memory chips used in USBs and smaller devices, reported a profit of $1.08 per share. Revenue for the period came to $6.06 billion, up from $4.87 billion one year ago. Wall Street had forecast a profit of 98 cents per share on revenue of $5.89 billion.

Micron Chief Executive Sanjay Mehrotra (pictured) said the company benefited from strong sales of DRAM chips for cloud computing, PCs and video games consoles and an “extraordinary increase” in QLC NAND flash, which is the most advanced type of NAND flash it makes.

“We look forward to improving market conditions throughout calendar 2021, driven by 5G, cloud and automotive growth, and we are excited by the continued momentum in our product portfolio,” Mehrotra said.

DRAM chip sales pulled in revenue of $4.4 billion, while NAND sales added $1.5 billion. The company also reported a gross profit margin of 34.1% in the quarter, up from 28.6% a year ago.

It was a strong quarter, but the company had disappointing news for investors going forward. For the first quarter of 2021, Micron forecasts a profit of 40 to 54 cents per share on revenue of $5 billion to $5.4 billion. Wall Street had forecast much bigger earnings of 69 cents per share on revenue of $5.27 billion.

As a result, Micron said, it expects its first-quarter gross profit margin to fall to a range of 26.5% to 28.5%.

Micron Chief Financial Officer David Zinsner said on a conference call with analysts that its recovery in the mobile, auto and consumer markets was being slowed by the ongoing COVID-19 pandemic. “Enterprise demand is weak and some of our customers may be carrying higher inventory,” he added.

The company also warned that it doesn’t know when it will be able to procure a license to continue selling products to Huawei Technologies Co. Ltd., one of its largest customers which accounted for 10% of its fourth quarter shipments. The Chinese firm has been blocked by U.S. President Donald Trump’s administration from purchasing U.S.-made computer chips on national security concerns. Micron said it ceased making shipments to Huawei on Sept. 14. Its fourth quarter ended on Sept. 3.

Pund-IT Inc. analyst Charles King told SiliconANGLE that Micron’s results shine a spotlight onthe benefits of COVID-19’s impact on the economy, with enterprises scrambling to buy PCs and other hardware to keep their employees working from home, and the long-term impacts of a badly chosen trade war with China.

“The impact of the trade war on China shows how mishandled political gamesmanship doesn’t just hurt the intended target, but also tends to injure companies at home,” King said. “Perhaps a new administration, if there is one, can repair some of this unnecessary and, hopefully, unintended damage.”

“Micron has been sailing well but the winds are getting weaker, with the COVID-19 and Huawei issues taking the wind out of its sails,” said Constellation Research Inc. analyst Holger Mueller. “Now the Micron crew will have to decide if it can run a profitable smaller ship, or double down and preserve capacity in order to be ready for the resumption of stronger winds.”

Micron’s stock fell more than 3% in after-hours trading.

Photo: SiliconANGLE

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