Micron shows how the cloud is saving chip makers


Memory-chip maker Micron Technology Inc. was saved by a boom in data centers, adding to chip makers’ growth as the pandemic forces more companies to expand their cloud computing capabilities.

On Monday, Micron
MU,
+1.35%

reported better-than-expected fiscal second-quarter earnings and had a stronger outlook for the next quarter, despite some issues with the global supply chain due to the COVID-19 pandemic. Micron’s shares jumped nearly 6% in after-hours trading. At Monday’s close, Micron was trading at $49.15, down 8.62% for the year but a huge recovery from its plunge in March, when it hit a low of $31.13 in the early days of the pandemic.

“We continue to see healthy demand trend in cloud in the second half of the year,” Micron Chief Executive Sanjay Mehrotra told analysts on a conference call. “Cloud is still actually in early innings, and long-term trends for cloud are strong.” In the second quarter, the company said that the work-from-home economy, e-commerce and videogame streaming all drove a strong surge in demand for more cloud-computing capabilities.

Micron’s comments echo those that other chip giants, such as Intel Corp.
INTC,
+1.33%

and Nvidia Corp.
NVDA,
+0.49%

NVDA,
+0.49%
,
made last quarter. On Monday, Xilinx Inc.
XLNX,
+1.03%

joined the crowd when it updated its guidance for its fiscal first quarter, noting that strong performance in wireless and data center were offsetting weakness in consumer segments.

In the second half of the year, Micron said that it expects demand for consumer technology products such as PCs and smartphones to improve. That’s in part due to the ongoing rollout of 5G networks, which will drive demand of new smartphones that have more dynamic random access memory (DRAM) chips, compared to 4G-network phones. The company said that average selling prices of both DRAM chips and NAND flash memory were up sequentially from the previous quarter.

One issue hovering over the company, and indeed most chip makers, is the growing rise in inventories, both by Micron and its customers, especially in the smartphone market. When asked by an analyst about the growing inventories, Mehrotra said its customers are trying to prepare for when consumer demand returns.

“Customers want to be prepared to supply the smartphone demand” when it returns, he said. “So, overall, you know, it’s a mixed picture with respect to the inventory on the customer front. Cloud inventories are in decent shape,” while mobile inventories are “somewhat in anticipation of demand.”

NVDA,
+0.49%

The chip industry has been amazingly resilient during the coronavirus pandemic, and most of the demand is due to data centers and the demand for more cloud computing. If the PC and smartphone markets return to growth, there could be even more upside for chip makers such as Micron. But for now, the sure thing is centered around the data center.



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Micron earnings show spike in memory sales, forecast suggests more of the same


Micron Technology Inc. shares jumped in after-hours trading Monday after the memory-chip maker said sales surged in the third quarter and are expected to remain strong in the final period of its fiscal year amid the COVID-19 pandemic.

Micron
MU,
+1.35%

forecast adjusted fiscal fourth-quarter earnings of 95 cents to $1.15 a share on revenue of $5.75 billion to $6.25 billion, which would be a big gain from a year ago when the company reported earnings of 56 cents a share on revenue of $4.87 billion.

Analysts surveyed by FactSet, on average, were predicting fourth-quarter earnings of 79 cents a share on sales of $5.46 billion, according to FactSet.

Shares gained more than 5% in after-hours trading, following a 1.4% gain in the regular session to close at $49.15.

“As we look ahead at the second half, of course, you know, given the total COVID environment and uncertainties around COVID around the globe, we basically have limited visibility,” said Sanjay Mehrotra, Micron’s chief executive, on a conference call.

“Yet, we do believe that cloud demand in the second half of the calendar year will continue to be healthy for us,” Mehrotra said.

Micron specializes in DRAM and NAND memory chips. DRAM, or dynamic random access memory, is the type of memory commonly used in PCs and servers, while NAND chips are the flash memory chips used in USB drives and smaller devices, such as digital cameras. While the COVID-19 pandemic has been cited as fueling a boost in memory-chip sales, many analysts suspect that may have oversupplied the market, which could bode poorly for the second half of the year — but not according to Micron’s forecast.

The company reported fiscal third-quarter net income of $803 million, or 71 cents a share, compared with $840 million, or 74 cents a share, in the year-ago period. Adjusted earnings were 82 cents a share, compared with $1.05 a share in the year-ago period. Revenue rose to $5.44 billion from $4.79 billion in the year-ago quarter.

Analysts had forecast adjusted earnings of 75 cents a share on revenue of $5.27 billion.

Micron had already informed investors that it would outperform its original expectations. In late May, Micron forecast adjusted earnings of 75 cents to 80 cents a share and revenue of $5.2 billion to $5.4 billion, up from its forecast of 40 cents to 70 cents a share on revenue of $4.6 billion to $5.2 billion back in March.

For the year, Micron shares are off about 10%, while the PHLX Semiconductor Index
SOX,
+1.14%

SOX,
+1.14%

is up 4%. Meanwhile, the S&P 500 index
SPX,
+1.46%

is down 6%, and the tech-heavy Nasdaq Composite Index
COMP,
+1.19%

is up 9%.



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