On Wednesday afternoon, the memory giant reported November quarter (fiscal first quarter) revenue of $5.14 billion (down 35% annually) and non-GAAP EPS of $0.48 (down 84%), topping consensus analyst estimates of $4.99 billion and $0.47. At the same time, it guided for February quarter revenue of $4.5 billion to $4.8 billion and EPS of $0.29 to $0.41, which at the midpoints is below a consensus of $4.75 billion and $0.39.
So why did Micron's stock, which was already up 67% on the year going into earnings, rise 4.6% in after-hours trading to $55.49? A still-moderate valuation and the company's 2020 commentary are both probably helping.
Though Micron provided light guidance for the seasonally weak February quarter, the company said it's optimistic the quarter will represent "the cyclical bottom for our financial performance," following a pretty rough 2018 that saw sales and earnings get hit hard by tumbling DRAM and (during the first half of the year) NAND flash memory prices.
Likewise, though Micron's memory pricing guidance for the February quarter is mixed -- its DRAM average selling price (ASP) is expected to drop sequentially again, while its NAND ASP is expected to see another quarter of slight growth -- CEO Sanjay Mehrotra said on the earnings call that Micron is also optimistic about improved memory pricing trends over the course of 2020, as major capital spending cuts by memory makers yield a more favorable supply/demand balance.
In addition to suggesting this quarter will probably represent a bottom, Micron struck an upbeat tone for both DRAM and NAND demand trends.
Micron's NAND supply and demand outlook. Source: Micron.
For NAND, the company slightly hiked its 2019 industry bit demand growth guidance -- it now expects mid-40s percentage growth, after previously guiding for low-to-mid 40s growth -- and reiterated that it expects 2020 demand to grow by a high-20s to low-30s percentage. Rising solid-state drive (SSD) penetration rates and average capacities are helping (shortages are being reported for some SSDs), as are smartphone storage capacity increases.
Micron's DRAM guidance changes were more mixed. The company now expects 2019 DRAM bit demand growth of around 20%, up from prior guidance for mid-teens growth. However, it's also now guiding for mid-teens 2020 bit demand growth, down from prior guidance of "high-teens to 20%" growth. Mehrotra suggested on the call that the gradual normalization of previously-reported inventory builds by Chinese customers will impact 2020 DRAM bit demand growth.
Micron's DRAM supply and demand outlook. Source: Micron.
But outside of PC DRAM, a market where Intel (INTC) PC CPU shortages are a clear near-term headwind, Micron struck an upbeat tone about how DRAM demand is trending in various end-markets. To varying degrees, the company indicated that demand from cloud, enterprise, smartphone, graphics and automotive clients is currently healthy.
Micron added that the memory capabilities of new server CPU architectures (likely a reference to both Intel's Cascade Lake Xeon CPUs and AMD's (AMD) Rome Epyc CPUs) are boosting demand for high-density server DRAM modules and even leading to shortages for some parts. And -- while highlighting the recent unveiling of a sub-$300 Xiaomi 5G phone for China that features 6GB of RAM -- it talked up the potential for 5G phone launches to boost smartphone DRAM capacities in 2020.
Micron, whose sales to Huawei have been hit hard by U.S. export restrictions, also disclosed that it recently obtained licenses to support various products to Huawei that aren't subject to export restrictions, as well as to have new products qualified by Huawei's mobile and server businesses. However, the company cautioned that "it will take some time" for the new products to be qualified.
While digesting Micron's numbers and commentary, it's worth remembering that Micron earned between $2.02 and $3.53 per share during the six quarters it reported from September 2017 to December 2018, as the DRAM industry witnessed an epic boom cycle.
Ultimately, markets care less about whether Micron earns $0.35 or $0.39 per share this quarter than about whether quarterly EPS will get back to something like the $2.00 range in time. And Micron's outlook gave some hope that things are starting to trend in the right direction, even if it could take a little while to get back to $2.00 (never mind $3.53).
And $2.00 in quarterly EPS would of course spell $8.00 in annual EPS. Even after its big 2019 gains, Micron still trades for less than 7 times that figure, not to mention less than 5 times fiscal 2018 EPS of $11.95. Markets undoubtedly haven't forgotten that either.