Micron Technology (NASDAQ:MU) shook up investor confidence when the company changed its 2H outlook to negative. On its Q4/2019 report issued on Sep. 26, the company reported weak revenue and forecast weak NAND guidance. DRAM demand trended lower. Should investors buy the stock?
Micron reported Q4 revenue down 42%. Operating cash flow fell to $2.23B, down from $5.16B. It forecast Q1 revenue of $4.8-$5.2B, above the $4.78B consensus. But Huawei sales fell sequentially, worse than expected. If the U.S. government rejects Micron’s applications for waivers, results will worsen further.
DRAM demand will come in below the industry demand levels. NAND growth in CY20 will be sharply below industry demand, hurt by excess supplies. The Trump anti-trade policies clearly hurt Micron and force China’s suppliers to adapt, hurting Micron further. Chinese firms will continue turning their focus on manufacturing their own memory chips.
Micron will draw down inventory through 1H/2020. At competitive prices, its supply levels will shrink quickly, restoring the demand-supply equilibrium. Depreciation rates were at decent levels in the quarter. Lower capex ahead will help the company avoid running chip manufacturing at a loss.
Your Takeaway
Micron is at risk of correcting further to the downside after investors sent the stock down by 11% on Sep. 27. Watch for U.S.-China trade talk progressing positively and for buying an interest in MU stock improving before considering investing in it.
