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How Weak Memory Chip Prices Affected Micron’s Earnings in Q2 2019

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Micron’s second-quarter results

Micron (MU), the largest US chip maker, topped earnings and revenue estimates in the second quarter of fiscal 2019. Its EPS of $1.71 beat expectations by 2.4% but fell 39.4% from the previous year’s numbers. Its revenue of $5.84 billion also beat analysts’ estimate of $5.82 billion in the quarter but fell ~20.6% YoY (year-over-year).

The fall in its YoY earnings and revenue came amid a challenging market scenario. The company witnessed adverse memory and storage pricing and waning demand for high-end smartphones, which pulled down its YoY results.

Struggles in the semiconductor industry

The semiconductor industry has been struggling for various reasons. Soft iPhone sales and diminishing cryptocurrency demand have significantly hurt chip makers. The decline in global demand for mobile and other electronic devices resulted in the oversupply of DRAM (dynamic random-access memory) and NAND (negative-AND) memory chips and caused a fall in prices.

Micron’s key customers NVIDIA (NVDA) and Intel (INTC) are also facing supply constraints. South Korean smartphone maker Samsung (SSNLF) is also struggling with a slowdown in demand and a drop in chip prices. Weakness in Apple’s iPhones also hurt chip stocks Micron and Western Digital (WDC).

The end of cryptocurrency demand hurt NVIDIA’s results in the fourth quarter of fiscal 2019. Intel’s fourth-quarter results also took a hit due to scattered purchasing patterns by cloud-computing vendors. Ongoing trade tensions between the United States and China, along with the slowdown in China, have increased investors’ concerns. Micron warned in September that the tariff war could hurt its financial results for a year.

To combat lower demand and supply issues, Micron has reduced the production of some factory lines and started investing in its next-generation chips, which should help it gain profits.

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