Micron Stock Soars on Cloud Demand and Strong Guidance

Micron Technology (NASDAQ:MU) stock rose about 6% in extended trading on Monday. The chipmaker reported its earnings results for the third quarter of fiscal 2020 after the market bell. As expected, the company beat the earnings and revenues in the May-ending quarter amid the coronavirus pandemic. Micron also provided strong guidance for the fourth quarter of fiscal 2020 due to higher demand for data center chips. Notably, the company recorded better-than-expected second-quarter earnings and gave an upbeat forecast for the third quarter in May.

Micron stock rose about 1.35% on Monday and closed at $49.15. At this closing price, the company’s market capitalization is $54.7 billion. After touching its March-lows of $31.13, the stock has recovered nearly 58% to date. On a year-to-date basis, the stock is still down by 5.6% as of Monday.

Micron’s Q3 earnings results

Micron reported an adjusted EPS of $0.82 in the third quarter of fiscal 2020. The company’s earnings beat the EPS expectation of $0.77 by 6.5% but declined by 21.9% from the EPS of $1.05 in the same quarter last year. Notably, Micron’s earnings have been declining for the past seven consecutive quarters. A significant contraction in the gross and operating margins, due to lower memory prices, has weighed on the earnings.

The company’s revenues of $5.44 billion also beat the expectations of $5.31 billion in the quarter. Micron’s revenues grew ~13.6% YoY (year-over-year) from $4.79 billion in the third quarter of fiscal 2019. Notably, the earnings and revenues increased by 82.2% and 13.4%, respectively, from the preceding quarter.

In the third quarter, while the gross margins contracted by 610 basis points to 33.2%, the operating margins declined by 520 basis points to 18.0%. Micron has stockpiled its raw materials to continue its production and meet the increased supply chain during the coronavirus outbreak.

Recovery in memory chip demand

According to the company, the coronavirus pandemic paused the demand for memory chips used in personal computers and smartphones. However, the company witnessed increased sales of Micron chips for data center servers as online activities surged and people started to work from home.

During the earnings conference call, Micron CEO Sanjay Mehrotra expects strong demand for data center chips through 2020. He also expects “smartphone and consumer end-unit sales to continue to improve, accelerating inventory consumption across the supply chain.” Micron is banking on new gaming consoles to boost the DRAM and NAND demand.

Micron’s guidance

For the fourth-quarter results ending in August, Micron expects its revenues to be $5.75 billion–$6.25 billion. The company also expects its adjusted EPS to be $0.95–$1.15 per share in the fourth quarter. The company expects its gross margins to be 34.0%–37.0% in the coming quarter.