Micron Technology (MU) stock is springing upwards on Thursday after the company revealed it sees a second half recovery in memory demand.
Shares bounced over 3% in pre-market hours, implying the highest open in about a month, as many speculate the bottom may be visible in DRAM and NAND memory demand.
"Since our last earnings call, DRAM pricing weakened more than expected," CEO Sanjay Mehrotra told analysts. "However, as we discussed on our last earnings call, we still expect DRAM bit shipments to begin increasing in our fiscal Q3, with demand growth strengthening in the second half of calendar 2019 as most customer inventories are likely to normalize by mid-year."
Mehrotra added that he expects demand to accelerate strongly into 2020 as innovation necessitates more memory.
"We believe that 5G, foldable phones and upcoming innovations in augmented and virtual reality will drive sustained content growth for years to come and should reignite smartphone unit sales beginning in calendar 2020," Mehrotra told investors. "In the data center market, the demand for memory has moderated this year following exceptional growth in the last two years."
For NAND, Mehrotra again acknowledged the persistent weakness at present before forecasting recovery ahead.
"NAND markets remain oversupplied from the acceleration in bit growth driven by the industry transition to 64-layer 3D NAND," he said. "Although fiscal Q2 pricing came in below our expectations, we are optimistic that demand elasticity and seasonal trends will support improving demand growth in the second half of the calendar year. We expect that calendar 2019 NAND bit demand growth is likely to be in the mid-30s% range, with industry supply growing in the high-30s, and we are targeting our bit shipments to grow close to the growth rate of industry bit demand."
He noted that the market conditions Micron is observing allows for the company to cut its capital expenditures for 2019 to $9 billion, far lower than the $10.5 billion expected in late 2018.
The bullish outlook on both of the company's key memory offerings added to optimism built in by the company's earnings beat on both the top and bottom line in the February-ended quarter.
Micron $MU reports Q2 earnings:— TheStreet (@TheStreet) March 20, 2019
- Revenue of $5.84 billion
- GAAP net income of $1.62 billion, or $1.42 per diluted share
- Non-GAAP net income of $1.97 billion, or $1.71 per diluted share
- Operating cash flow of $3.44 billion
To be sure, the company foretasted near term weakness across nearly all of its end markets and doesn't expect improvement for at least a few months.
That tepid forecast in the immediate term has left much of the analyst community divided, with seven analysts raising price targets and three cutting their estimates amid differing rebound read-throughs.
"At this time, it is difficult to pinpoint whether F3Q (May) will be the trough EPS quarter, but our sense is that it should be very close to the trough, and we should see the combination of demand recovery, supply cuts and inventory depletion driving a healthier market in the second half of 2019," Deutsche Bank analyst Sidney Ho said. "With the stock trading at ~1.3x book value of ~$31, we believe risk/reward profile is attractive."
Ho advised a "Buy" rating and set a price target at $48 per share, just under the analyst consensus at $48.76.
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