Micron Sees Weak Market Ahead

Over the past few weeks, signs have increasingly signaled that the two-year boom in memory chip sales is grinding to a halt. Now, U.S. memory chipmaker Micron Technology has provided more indications that a bust cycle is at hand.

Micron reported on Tuesday quarterly sales and earnings at the low end of Wall Street estimates but said that it expects revenue to decline significantly in the current quarter due to “weak near-term supply-demand dynamics.”

However, Micron executives characterized these dynamics as a short-term bump in the road en route to continued expansion in the second half of next year. Some memory market watchers believe that a memory downturn is likely to last significantly longer.

Sanjay Mehrotra, Micron’s president and CEO, told analysts on a conference call following the quarterly report that the downbeat forecast is primarily related to a glut of inventory in the supply chain.

“We’re just going through an air pocket here related to primarily inventory adjustments as well as some seasonal, weak mobile demand — including mobile demand” he said.

While Micron is implementing some cost control measures such as cutting back on capital spending, said Mehotra, he expects 2019 to be a profitable year for the company. “Micron is better-positioned than ever before to win in this environment with our strong balance sheet and the structural improvements we have made to our operating model in the past several years.”

“He’s certainly still giving a very bullish outlook,” said Jim Handy, principal at Objective Analysis, of Mehotra’s view. “He’s looking to trim capital spending now to take care of things late in 2019. My understanding of how the market works is that anything you do now to capital spending isn’t going to have an impact for two years.”

Handy used the familiar metaphor of trying to turn around an aircraft carrier to compare to a memory chip company steering through a downturn. “What Micron is doing is turning the steering wheel now with the hopes that the ship will turn by the end of 2019, but it’s really not going to have an impact until later,” he said.

Micron’s sales for the quarter ended Nov. 30 totaled $7.91 billion, up 16% year over year but down 5% from the previous quarter. The company’s quarterly net income totaled $3.29 billion, up 23% from the year-ago quarter but down 24% compared to the previous quarter.

For the current quarter, Micron expects sales to fall to between $5.7 billion to $6.3 billion, well below the $7.34 billion average of analysts’ estimates, according to Yahoo Finance.