1 Red Flag and 1 Green Flag for Micron Technology

Micron Engineering‘s (MU -2.25%) most recent final results for its fiscal 3rd quarter, which had been released on June 30, turned out to be a shocker as the company’s steering was way guiding expectations.

Micron’s earnings and income for the three months ending on June 2 improved properly yr more than year, but its outlook was proof that its times of rapid development are now in the rearview mirror. The memory specialist expects to gain $1.63 for every share this quarter on profits of $7.2 billion. Wall Avenue was seeking for $2.60 per share in earnings on $9.15 billion in gross sales. People quantities would have resulted in first rate yr-in excess of-year development as Micron had reported $2.42 per share in modified earnings on $8.27 billion in income in the year-ago period of time.

The steerage, even so, turned out to be dismal and sent investors panicking. Let’s search intently at the explanation why Micron’s guidance was woeful, as this is a pink flag that opportunity traders really should be conscious of.

The red flag

Micron management’s comments on the most up-to-date earnings meeting simply call make it clear that the chipmaker is in for a interval of downturn thanks to weak memory demand from smartphones and private pcs (PCs). That is due to the fact the cell, Laptop, and buyer markets accounted for 55% of Micron’s full revenue in 2021, and these verticals are in for difficult moments this calendar year.

IDC estimates that Personal computer shipments are on keep track of to drop 8.2% in 2022. Smartphone product sales, on the other hand, are expected to fall 3% this calendar year. The weak spot in these markets — pushed by many headwinds this sort of as weak buyer investing, the war in Ukraine, and rising inflation — is heading to impact the demand for memory chips that Micron sells.

As a outcome, Micron has determined to streamline its stock and capacity investments, so that memory selling prices will not tumble. The terrible information, however, is that memory charges are presently trending reduced at an alarming tempo. According to marketplace exploration business TrendForce, the price of DRAM (dynamic random entry memory) could fall approximately 10% in the third quarter of 2022 as when compared to the 2nd quarter. The firm was earlier anticipating a rate drop of 3% to 8%.

As DRAM produced nearly a few-fourths of Micron’s whole income final quarter, the decrease in DRAM costs poses a significant problem for the firm and is a major crimson flag that buyers should not dismiss.

The environmentally friendly flag for Micron Technologies

Micron’s in close proximity to-term prospects are no doubt gloomy, but savvy traders need to emphasis on the even bigger picture through these challenging occasions. The major eco-friendly flag for investing in Micron ideal now is the secular progress that the memory current market is expected to clock in the lengthy operate.

Micron estimates that its whole addressable opportunity in 2021 in the NAND flash storage and the DRAM marketplaces was worth $161 billion. That addressable market place is anticipated to strike $330 billion by the close of the 10 years. Micron is in a great placement to take benefit of this incremental profits possibility as it managed nearly 23% of the DRAM industry previous year. Its share of the NAND flash memory sector stood at just over 10% in the 3rd quarter of 2021.

It is truly worth noting that Micron is trying to set up a technological know-how edge in excess of its rivals by way of its merchandise progress moves that could assist enhance its market place share in the long run. The corporation statements that it is occupying the leading position in the DDR5 DRAM space, which really should help it take benefit of the details middle market as this variety of memory is envisioned to power next-era servers.

Also, Micron thinks that it retains the best position in the automotive memory current market as very well. This bodes well for the organization as DRAM demand in automotive could clock once-a-year progress of 40% via 2025, whilst NAND demand from customers could enhance at an once-a-year rate of 49% more than the same period of time.

So, it would not be shocking to see Micron get back its mojo in the prolonged run and change out to be a major semiconductor bet when again. But buyers will have to hold out for a turnaround in the memory market’s dynamics for that to transpire.

Severe Chauhan has no position in any of the shares stated. The Motley Idiot has no position in any of the stocks pointed out. The Motley Fool has a disclosure policy.