Micron Technology Inc. (Nasdaq: MU) was a darling of the tech sector in the first half of 2018. Investors fell in love with the company’s promising double-digit earnings and revenue growth, which dovetailed well with its unusually low price-to-earnings ratio.
In both March and June of last year, MU stock swung to year-to-date gains of roughly 50 percent, only to see those gains come crashing back to earth. Many speculative investors lost a lot of money betting this supposed “value” tech stock would come roaring back.
But the anticipated rebound never happened. Micron finished 2018 with a loss of 22.8 percent.
Now, here we are a year later, and MU stock is sitting on a year-to-date gain of more than 23 percent.
Despite the impressive rebound, Micron’s situation hasn’t changed … as we will find out in two weeks when the company releases its second-quarter earnings report.
Gone are the days of double-digit gains. Analysts expect Micron to post a profit of just $1.70 per share, down 39 percent from the same quarter last year. Revenue is facing the same fate and is projected to fall 19 percent year-over-year to about $5.97 billion.
Why the sudden tectonic shift for a company that looked so promising this time last year?
It’s a combination of slowing demand and plunging semiconductor prices. In the company’s first-quarter earnings call, Micron once again reduced guidance due to lower-than-expected demand in the semiconductor industry.
One of Micron’s main markets is the smartphone and mobile market, which has done little to entice consumers to upgrade their phones in the past year.
Then there’s the issue of falling prices. Micron specializes in DRAM and NAND flash memory. These are non-mechanical means of storage that are key to PC memory, mobile devices and solid-state hard drives.
The problem is that these technologies have nearly outlived their usefulness. DRAM and NAND have about hit their limits for storage capacity, and data hungry mobile devices are demanding more.
There is a solution in the works for Micron in the form of 3D-NAND, which drastically increases storage capabilities. However, the tech is expensive at the moment, and slack demand in the mobile market isn’t helping to reduce those costs of scale.
Essentially, Micron is near the bottom of the current tech cycle in semiconductors. And this will be reflected in the company’s earnings.
So, just where can we expect to see MU stock following this month’s quarterly earnings report? Micron options can give us a rough estimate. Currently, March 22 series options are pricing in a potential move of 11.3% for Micron shares following earnings.
In other words, MU stock could rally as high as $42.12 or fall as low as $33.54. Given the poor prospects for this once red-hot tech stock, it looks like it’s back to the $30s for Micron.
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