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Micron stock plunges though earnings beat expectations. This is why, and what it means

photo of sanjay mehrotra, politicians, and former micron executives

Micron CEO Sanjay Mehrotra celebrating the company’s 40th anniversary. Photo by Sharon Fisher

The chief executive of Boise’s Micron Technology Inc. put a positive spin on the company’s latest earnings when Micron reported them last week.

“Micron delivered fourth quarter results ahead of expectations, capping a fiscal 2019 in which we executed well in a challenging environment, significantly improved our competitive position, and returned cash to shareholders through share repurchases,” CEO Sanjay Mehrotra said in a news release.

But the stock plunged anyway the next day. As the number of shares traded more than doubled on Friday, the stock price fell 11% to $43.21 , from $48.60 the day before. They fell an additional 36 cents on Monday, closing at $42.85.

What happened?

For one thing, sales fell a whopping 43% in the quarter compared with the same quarter a year earlier, to $4.9 billion vs. $8.4 billion. Operating income, or profit, fell to 13% of revenue, one-fourth of the year-ago’s 52%.

The reason, analysts and trade-press reports say, is that the companies that buy the two kinds of digital memory that Micron makes stocked up a year ago and don’t need as much now. Micron memory chips help servers, laptop and desktop computers, smartphones and other digital devices work.

The decline in demand is worrisome for a company that remains the largest for-profit employer in the Treasure Valley, with more than 6,000 workers — many of them highly paid scientists and engineers — working mostly at Micron’s main campus on Federal Way.

But investors who pay close attention to Micron already knew about the downturn. Analysts fully expected Micron to announce lower revenues and profits. The falling sales were already baked into Micron’s stock price when the company reported its earnings after the close of trading on Thursday.

Why, then, the big Friday selloff?

Some analysts lay the blame on Micron’s forecast for the current quarter. Micron regularly offers an earnings outlook with its quarterly reports. It projects earnings in the current quarter of 46 cents per share, on sales of $5 billion. That compares with 56 cents in the quarter that ended Aug. 29.

One problem is that the 46-cent projection is less than analysts had expected. By 1 cent, or maybe 7 cents, depending on which survey of analysts you read.

“Never in my career has so much fuss been made over a penny,” said one incredulous commenter on Seeking Alpha, a site where investors share opinions and observations.

Micron also forecast a disappointing holiday season, MarketWatch reported.

The memory industry has always been plagued by cycles of ups and downs, in part because manufacturers’ chips are often interchangeable. The industry has consolidated over the past generation, with just three makers of dynamic random-access memory (Micron and two Korean companies) and six makers of flash memory, including Micron. The consolidation has helped to reduce the cycles’ extremes. So have Micron’s efforts to make its products less commodity-like and more worthy of premium pricing.

In earlier eras, downturns like the current one sometimes sent Micron deep into red-ink territory and led to big layoffs in Boise. No one forecasts that now.

Some analysts say the worst is already over. Mehrotra suggested as much in his statement: “We are encouraged by signs of improving industry demand, but are mindful of continued near-term macroeconomic and trade uncertainties. As markets recover, Micron is well positioned to address the robust secular demand for memory and storage solutions.”

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