Shares of Micron Technology Inc. (NASDAQ: MU) popped in after-hours trading Tuesday after the company reported a positive earnings surprise for its most recent quarter, alleviating some of the concerns about a pervasive supply-demand imbalance in the shaky semiconductor industry.

 

Q3 Earnings Summary

  • Earnings: $1.2 billion ($1.02 per share)
  • Revenue:$4.79 billion

Micron Beats Earnings, Revenue Estimates

Micron’s quarterly financials topped Wall Street’s dismal forecasts thanks to “early signs of demand improvement,” the Boise, Idaho-based chipmaker reported late Tuesday. The company earned an adjusted $1.05 per share on revenue of $4.79 billion in the quarter ended May 30. Analysts in a median estimate called for per-share earnings of just $0.76 on revenue of $4.71 billion.

Sanjay Mehrotra, Micron Technology’s president and CEO, said the company plans to reduce “capital expenditures in fiscal 2020 to help improve industry supply demand-balance.”

The company’s stock declined 1.5% in regular trading on Tuesday before jumping almost 9% after hours. MU is down a whopping 40% over the past year and has barely broken even for 2019.

Micron Share Price 1 Year - Jun 25 2019

Source: Yahoo Finance

At less than $33 a share, Micron has a total market capitalization of $36.2 billion. The company was valued at more than $75 billion last summer.

 

Semiconductor Downtrend

Huawei is one of Micron’s biggest customers, accounting for 13% of Micron’s sales during the previous two quarters.

Like other advanced chipmakers, Micron is caught in a brutal downtrend that has ravaged the semiconductor industry. Global semiconductor sales have declined for two consecutive quarters amid structural changes in the memory market.

This time last year, Micron was riding a strong tailwind of higher prices for its computer memory chips thanks to growing demand from cloud-based data centres. Demand may have been overstated as data centres loaded up on memory to safeguard against potential supply shocks in the future.

That buying spree seems to have created a market that is flush with memory — far more than data centres need right now. In response, Micron was forced to slash its outlook.

A U.S.-China trade war that is increasingly targeting chipmakers has made matters worse now that the Trump administration is taking the screws to Huawei Technologies Co., one of Micron’s biggest customers. The Chinese telecom giant accounted for 13% of Micron’s sales during the previous two quarters, according to BMO Capital Markets.

The trade war has placed downward pressure on semiconductor companies. Case in point: The S&P 500’s semiconductor industry is the only technology segment to report year-over-year declines. Year-over-year, the segment is down 6.8%. The overall technology sector is up more than 26% over the same period.

 

Conclusion

Micron may have beat on both the top and bottom lines last quarter, but the short-term outlook remains tilted to the downside. It remains to be seen whether aggressive cost-cutting can right the ship or whether trade-war hostilities will continue to inflict damage on the multinational chipmaker.

Disclaimer: Author holds no investment position in Micron Technology at the time of writing.