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The odds were stacked against Micron Technology (NASDAQ: MU) going into its fiscal first-quarter earnings report in mid-December, and it wasn't surprising to see the company disappointing investors by missing analysts' revenue estimate and providing weak guidance. The tables have been turning against the memory specialist over the past few months as the memory industry has been moving toward a period of oversupply, and it looks like the bad times are here to stay at least for a while.
Going downhill
Micron investors and analysts were already expecting a decline in Micron's earnings and revenue going forward because of the changing memory industry dynamics. But what the company ended up predicting is way worse. It expects its top line to crash nearly 19% year over year in the second quarter, while Wall Street was looking for only a slight drop.
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Meanwhile, its earnings per share are predicted to crash 38% on the back of severe margin erosion. More specifically, Micron expects its gross margin to range between 50%-53% in the current quarter, compared to the prior-year period's 58.4%.
This isn't the first time that Micron has failed to deliver upbeat guidance in recent months. The company was already witnessing a drop in prices of NAND flash memory, and now the DRAM (dynamic random access memory) business is going the same way. According to Micron, DRAM demand "weakened through the course of our fiscal first quarter." Management has further clarified that they expect the weakness to continue and have limited near-term visibility.
However, Micron also pointed out that DRAM demand growth is expected to pick up from the third quarter of its fiscal year once inventory adjustments at its customers are over. Additionally, it predicts demand conditions to improve in the second half of calendar 2019. That would be critical to Micron's turnaround, as DRAM supplies 68% of its total revenue.
On the other hand, the NAND flash business also needs to show some signs of life, as it accounts for 28% of revenue. But the conditions here aren't any better, as suppliers have "elevated levels of inventory," according to Micron. In simpler words, Micron is facing a supply glut in its key markets, and that's forcing the company to slash capital expenditure (capex) by 13% for the fiscal year so it can cut output.
All in all, Micron is taking desperate measures to combat the memory industry oversupply, while giving investors hope that things will improve once the inventory correction is over in a couple of quarters. But that doesn't guarantee a turnaround for Micron.