As expected, Micron third-quarter earnings were lower than the previous quarter and sharply lower than a year ago, with revenue of $4.79 billion vs. $7.8 billion for the same period last year.
GAAP net income is $840 million, or $0.74 per diluted share, compared with $3.8 billion and $3.10 per share for the same period last year.
“2019 has been challenging for both Micron and the industry,” said CEO Sanjay Mehrotra on an analysts call, adding that with future technologies such as 5G and automotive – based in the company’s Virginia facility, not in Idaho – it would be in a good position when the industry recovered.
Mehrotra had said during the previous quarter’s call in March that this quarter’s revenues would be $4.8 billion, plus or minus $200 million, and earnings would be $0.85, plus or minus $0.10. Altogether, revenue was down 39% from a year ago and 18% from a quarter ago, said CFO David Zinsner on the call.
Next quarter’s results are predicted to drop further, with revenue of $4.5 billion, plus or minus $200 million, and earnings per share of $0.45, plus or minus $0.07. However, shipments should improve in the second half of the year, Mehrotra said.
Revenues for the Boise-based semiconductor company have been dropping since the previous quarter, due to worse than expected chip pricing. The company, which celebrated its 40th anniversary in October, has been predicting lower earnings since late last year.
In response, the company has been buying back its stock – $157 million in the previous quarter alone – as well as shedding staff through a process known as “stacked ranking” that puts a percentage of the lowest-performing employees on an improvement plan or lets them resign. The process isn’t characterized as a layoff.
In addition, the company has reduced capital expenditures from $10.5 billion to $9 billion, and expects that in fiscal 2020 they will be “meaningfully lower” than in fiscal 2019, Mehrotra said. However, he wouldn’t provide specifics on how much or where those reductions would occur. There will be more details in the next quarter’s call, he said.
While facilities for DRAM would continue with the 5% manufacturing reduction announced in March, facilities for NAND would have an increased reduction of 10%, Mehrotra said. Dynamic random access memory (DRAM) chips are typically used in computers, while nonvolatile NAND flash memory is used in solid state hard disk drives.
In the current quarter, the company was also slammed when President Donald Trump limited transactions with the Chinese company Huawei, which analysts on the call said had amounted to about 13% of Micron’s business during the previous quarter. While Micron has been able to resume shipping some products to Huawei, the amount is likely to be less for the foreseeable future, Mehrotra said on the call, but he wouldn’t provide specifics.
In addition, Micron wrote down about $40 million of inventory related to Huawei, Zinsner said on the call. Without the Huawei situation, Micron would have reached the higher end of its guidance, he said.
Micron isn’t alone in its chip industry struggles.
“Global chip sales reached record high levels in the third quarter of 2018, but have now declined for two consecutive quarters,” wrote Jim Handy, a veteran Micron analyst and general director of Objective Analysis, based in Los Gatos, California, in a note about the earnings. “Chip sales were expected to suffer a sharp downturn in 2019, and the sector faces its worst downturn in a decade, according to analyses. Other chip companies have been chopping forecasts, and Micron analysts have cut their estimates repeatedly.”
And it could get worse, wrote Handy, who has been predicting an industry collapse for some time.
“One analyst contends the memory market is so bad that Micron could actually post a loss for the year by the time 2019 is over,” he wrote.