The memory chip maker surprised analysts by earning $405 million, 36 cents per share, on revenue of $4.8 billion for the quarter ending in February. This coincided with the heart of the pandemic in China and Taiwan, where many of its biggest customers are located.
While revenue was down from the prior quarter, operating cash flow was nearly even, at $2 billion. The quarter ended with Micron having nearly $7.5 billion in cash and short-term securities on its balance sheet, against just $5.4 billion of long-term debt.
The results sent MU stock up over 5% on March 26, although shares are down over 3% in mid-morning trading March 27.
The Worst May Be Over for MU Stock
Micron has 13 different manufacturing plants. Many of its locations are in Taiwan, China and South Korea, where strict quarantine means the worst of the pandemic may be over. Its headquarters is in Boise, Idaho, where the pandemic is only now starting to take hold.
Shares rose sharply thanks to a conservative outlook from CEO Sanjay Mehrotra, who has seen many booms and busts in his 30 years as a memory company executive.
Because memory chips are commodity products, MU stock is prone to sharp rises and falls. Until recently it was said to be riding a “supercycle,” with chip-based memory replacing spinning disks in devices, PCs and the cloud.
The supercycle has not been resistant to the coronavirus, however. MU stock is down almost 20% this year.
Better Days Ahead?
I have called Micron the “canary in the coal mine” for the chip sector, because memory demand and prices can be volatile. In 2019 Micron’s sales were 20% below those of 2018, after jumping 33% from 2017. The February results put Micron on pace to come up short of last year’s revenue of $23 billion.
Volatility, of course, works both ways. The latest numbers have some analysts predicting a 40% gain for the shares, once the crisis is over.
Micron’s results indicated that cloud data centers are still buying memory chips. This may indicate good news for the whole chip sector, according to TV analyst Jim Cramer. The replacement of disks with chips in products sold for home use means Micron could also benefit from the work-at-home trend.
Analysts have been getting back on board the Micron train recently, the consensus moving from overweight to buy. This includes a Bank of America analyst who delivered a rare “double upgrade” after earnings, from “underperform” to “buy,” with a $60 price target.
In the near-term growth may depend on how fast phone makers get back into production and buy a new multi-chip flash storage device Micron recently began sampling. Over the longer term Micron will be commercializing the 3D XPoint technology it developed in the last decade with Intel (NASDAQ:INTC). The two companies ended their joint venture last year with Micron buying out Intel’s share.
The Bottom Line on Micron
Much of my confidence in Micron is down to Mehrotra, who Micron was fortunate to get as CEO in 2017. Mehrotra had sold SanDisk, which he helped found, to Western Digital (NASDAQ:WDC) in 2016. He was thus available when Mark Durcan retired, five years after he planned because long-time leader Steve Appleton died in a plane crash.
I believe the coronavirus pandemic will give an advantage to investors who select their own stocks rather than playing the market through mutual funds. Micron is one of the companies that should be on your radar.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.