There was lots of concern ahead of the earnings report for Micron Technology, Inc. (NASDAQ:MU), a top DRAM and flash memory manufacturer. But the fears were overblown. While the Micron earnings report was on the weak side, there were definitely some bright spots, especially with the company’s upcoming product offerings.
So let’s take a closer look: In fiscal Q2, MU reported sales of $4.17 billion and adjusted earnings of 81 cents per share. The Street was looking for sales of $4.15 billion and earnings of 73 cents per share.
But keep in mind that analysts had already reduced estimates over the past couple of months.
The outlook for Micron earnings wasn’t pretty, though. The company expects sales in Q3 to range from $3.8 billion to $4.1 billion, which falls significantly short of analysts’ forecast for $4.3 billion.
The problems are not necessarily specific to MU. After all, the semiconductor industry has suffered a pullback as seen with the awful performances in stocks like Intel Corporation (NASDAQ:INTC) and SanDisk Corporation (NASDAQ:SNDK).
One issue plaguing the industry is the slowing in PC demand. It appears that the wave of upgrades of systems has trailed off. But the surge in the U.S. dollar has also taken a toll on U.S. operators. As a result, companies have little choice but to reduce prices to remain competitive.
The world economy has also been slowing down, especially in in South America and China. There are even signs of a deceleration in the U.S. After all, this week the Federal Reserve Bank of Atlanta has put out a forecast for zero growth in Q1. Part of the reason for this is the horrible weather, but it also appears that there are fundamental issues at work as well, such as the cutbacks in the energy sector and the continued cautiousness of consumers.
MU Stock Still Looks Good in the Long Term
All those issues will lead to short-term headwinds. But the long-term prospects still look promising for MU stock. The company is focused on various growth markets like smartphones and cloud computing. There should also be opportunities with wearables, connected cars and smart homes — all of which should drive the demand for memory chips.
MU has also been investing in innovative technologies. To this end, the company has formed a collaboration with INTC to produce 3D chips. This technology involves stacking circuits on top of each other, which allows for big increases in capacity, and should be a good approach for smaller devices.
MU is also likely to benefit from its 20-nanometer chips, which are much more powerful than their predecessors but also rely in less energy consumption.
Oh, and MU stock is currently trading at an attractive valuation, with the forward price-to-earnings ratio at a mere 7. By comparison, INTC, QUALCOMM, Inc. (NASDAQ:QCOM) and SNDK trade at forward multiples between 12 and 13.
And again, Wall Street has already been selling off MU stock to account for the headwinds. So for now, things look fairly attractive, especially given the long-term trends and the strong pipeline of new innovative products.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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