Micron (MU) has been pummeled in the last six months and bloodshed does not look as if it is ready to heal. After receiving income Tuesday afternoon, the stock took a post-timing that turned out to continue. The bright side of taking the pounding following revenue is that the bar to come over has now been set much lower for Micron. So while backward-looking analysts who do not understand the semiconductor market want to argue that the industry is mostly cyclical, the Micron management has likely to beat them out. It should be apparent in a few circumstances that the decline in DRAM is not nearly as cyclic as many believe. Seasonal headwinds and digestion in the cloud room will keep Micron back temporarily, but secular growth and a huge buyback will set the company up for another dynamic run soon. Reduction of the bar to get over On the result, the management announced that they faced a "period of weaker demand" and that cloud customers were in a period of "digestion". It set the scene for them to lower the earnings forecast far below the street across the $ 2.44. These revenues come from revenues of $ 5.7b to $ 6.3b compared to the street $ 7.3 billion. Talking heads at CNBC called it a disaster. I call it a good tactical move. The management played right into the bearishness. I think Micron's odds do not get into high end or maybe exceed its estimates are very low. If…
Micron (MU) has been pummeled in the last six months and bloodshed does not look as if it is ready to heal. After receiving income Tuesday afternoon, the stock took a post-timing that turned out to continue.
The bright side of taking the pounding following revenue is that the bar to come over has now been set much lower for Micron. So while backward-looking analysts who do not understand the semiconductor market want to argue that the industry is mostly cyclical, the Micron management has likely to beat them out.
It should be apparent in a few circumstances that the decline in DRAM is not nearly as cyclic as many believe. Seasonal headwinds and digestion in the cloud room will keep Micron back temporarily, but secular growth and a huge buyback will set the company up for another dynamic run soon.
On the result, the management announced that they faced a “period of weaker demand” and that cloud customers were in a period of “digestion”.
It set the scene for them to lower the earnings forecast far below the street across the $ 2.44. These revenues come from revenues of $ 5.7b to $ 6.3b compared to the street $ 7.3 billion.
Talking heads at CNBC called it a disaster. I call it a good tactical move. The management played right into the bearishness. I think Micron’s odds do not get into high end or maybe exceed its estimates are very low.
If Micron calculates calculations, especially on revenue, it would make the analysts happier and lead to another stock recovery, upwards at that time. Gaining profits will also be important, but it will break down on capex and repurchase of analysts who will be skeptical until the stock price goes up – which is not the right way to analyze, but it’s the way most people do things. 19659011] Investor Psychology and Expectations
The shares move with investor psychology and expectations. Management of investors’ expectations has unfortunately become part of the game for companies. We hear CEO and CFO’s complain a lot about it. A CEO of a car company called an electrical engineer and inventor comes in mind.
At present, investor Micron charges because it was a pure commodity game that went into a glut in its product period. Certainly, the semiconductors led in the past massive cyclic trade-like busts. However, it was before massive consolidation in the industry in both DRAM, where Micron, Samsung (OTC: SSNLF) and HK Hynix (OTC: HXSCL) share more than 93% of the business, and NAND, which is down to a dozen competitors globally.
When reducing guidance, much more than expected analysts, Micron administration basically threw out the worst scenario likely to happen. The stock takes it into account, but now analysts and investors must really analyze the stock because technical pain is taking its course.
In other words, there’s really no place to go but top down and Micron’s management essentially said, here’s the bottom, do what you want with the share price. Of course, they followed by reminding them to buy shares back to half of the free cash flow.
Micron is a memory card maker that earns about 70% of its revenue in the DRAM dynamic random access memory market. They make the rest of their money for now in NAND. They have a new type of chip coming next year called 3D XPointwhich is a hybrid chip that has features for both DRAM and NAND.
Micron reported revenues from the first quarter of $ 791.9 billion, an increase of 15% yoy. Non-GAAP EPS was 2.91 USD, an increase of 21%. This means that revenue is below $ 8 billion, but the result is above the street number of $ 2.95.
The company reported $ 7.2 billion in cash and $ 4.1 billion in debt for a net cash of $ 3.1 billion. This is important because the company stated that they would continue to return half of the free cash flow to the shareholders through repurchase.
The repurchase program bought $ 1.8 billion in the last quarter for approximately 42 million shares or 3.5% of outstanding. When the stock price drops 9% after hours, I would guess they bought some shares this week.
The company estimates approximately 4.8 billion kronor in cash flow for the second quarter, so it is expected to buy approximately 2.4 billion dollars of shares. This corresponds to approximately 6.5% of outstanding in current prices.
The company experienced falling ASP (average selling prices) of 9% on DRAM and expects further deterioration. I see this as normalization. DRAM prices had been abnormally high due to marginal demand outside normal inventory channels, that is, encryption technology demand.
For NAND, ASP fell in the middle tones, and it is representative that the larger number of NAND producers could not control production as well as only three DRAM producers.
Micron Financial Results First Quarter Fiscal 2019 F
Everyone believes that the company is extremely strong again financially after deducting itself in recent years. The net cash position is very strong and they face a very small threat of becoming unprofitable. A normalization of ASP in the face of increased demand should stabilize revenue and earnings quarter or two.
Like Micron, Samsung and SK Hynix, DRAM manages production to make their customers manage their inventory. The company noted that stock changes would “consist of a couple of quarters”.
A new demand for software related to the cloud and the mobile is a bit of a break now, as upgrade cycles are unlikely to kick back into H2 2019.
Micron’s CEO Sanjay Mehrotra noted that “higher than usual stock in game cards ( graphics card) and (a) fall in crypto-related demand “was an overhang of graphics DRAM sales.  I’m not believing that the crypto-related demand will return, so we should note that they quoted in their latest conference call that crypto-driven demand was a single-digit percentage of sales. But I think it should be noted that the marginal sales also drove ASP units for a few years.
Further, smartphone demand is now pending and will go along with replacement cycles against the rapid market penetration of the past 15 years. 19659031] Mehrotra said The company is still seeing growth in some DRAM consumption segments “such as industry, clouds, companies and customer computation.”
According to DRAMExhange (behind paywall), from Q2 2018 to Q3 2018, DRAM revenues increased barely 9% and servers DRAM revenues increased by more than 10%. Forecasted total DRAM revenue for 2019 amounts to $ 101,087 million, amounting to approximately $ 99,877 million in 2018.
These figures say it’s clear that the decline in revenue is more of inventory management and that marginal buyers who lack margins increase prices than the actual product requirement. In other words, the unit’s demand is still increasing, but falling prices compensate the demand structure. Micron notes gave 22.4% of all DRAM servers.
Pause in demand growth is true for Micron, but it is unlikely the major economic downturn in the past due to secular factors that play and industry-wide consolidation over the past decade.
Mehrotra quoted increased demand for mobile, industrial and auto segments for future growth. The industrial segment is where I see huge growth as the industry continues to automate.
ATP Electronics recently released a report on future DRAM demand for artificial intelligence. They pointed out that AI and machine learning could give rise to a demand for memory needs.
Forbes listed the Top 10 Uses for AI and Machine Learning:
Data Security – Predicting Security Crime and Reporting Anomalies by Observing and Determining Patterns in
Personal Security – Identifying Things Human Screeners Can Miss Under Security Checks on airports, arenas, cinemas and other places.
Financial trade – Predicting and implementing high-speed and volume trading. 19659043] Healthcare – Understand disease risk factors in large-scale populations and spotting patterns for early disease prevention.
Personalization of Marketing – To help companies better understand their customers to deliver better, more personalized products and services.
Anti-fraud – spells out potential cases of fraud and distinguishes between legitimate and fraudulent transactions.
Recommendations – Analyze people’s activities and preferences to determine what they want.
Online Search – Discover patterns based on search queries to provide better search results.
Natural Language Processing – Simulate the human ability to understand language and understanding.
Smart cars – Enable self-driving cars that can understand and make intelligent adjustments to drivers, passengers, pedestrians and infrastructure protection.
All these AI uses are places where Micron finds possibilities. The question is how much, how fast and at what price.
Although this is a bit anecdotal, in Wisconsin, I have several industrial management customers and the influx of automated and smart technology is growing rapidly. The applications used now are significantly more effective than some older processes and the current applications have clearly plenty of room to improve.
As things of things and “smart the whole world” as I have described, it becomes a reality, memory needs will grow for a decade or more. Think of smart network uses that we need to build as alternative energy penetrates.
Think about the edge database and how the computerized brains, like supply chains, will be closer to end users. It is a massive structure that will come.
More boring than “smart everything” and AI, Micron reduces additional production costs, which makes sense for the bottom line. These cost reductions could stabilize gross margins in 50% -53%, which is not far from 59% achieved with what was essentially “surge” pricing.
Micron’s technicals have broken significantly to the point where its correction hits extremes in relative strength and money flows into the stock. See the RSI and Chaikin Money Flow indicators. Both can be at extremely low within a few days or less.
I am a major consequence of quantitative cash flow measures. In this chart, we can see that Chaikin Money Flow approaches a bottoming area. When it returns, it will indicate accumulation again, generally by major investors. Usually, especially if the trend line lasts longer than two weeks, the stock price tends to follow. You can see the correlations by comparing to previous CMF and pricing.
The Micr RSI also approaches a transferred level and can be extremely oversold immediately. When the RSI is under 30 for a day or two, then slow scaling or sales of cash secured expires one month on the money can be profitable strategies – or combine the two that I often do.
Finally, not listed on the chart, but important is the Fibonacci retracement that is being reached. During the rally in the stock exchange which began a few years ago from a price point of $ 9.35, it reached a maximum of $ 64.66 as mentioned above.
Fibonacci retracements have three very common levels, 38.2%, 50% and 61.8%. Retracement is measured by taking the first low point to the high point and measuring the gain. In this case, the stock went from $ 9.35 to $ 64.66 for a profit of $ 55.31. The retrace has already exceeded 38.2% and 50% of that win. A 61.8% retracement would be $ 34.18 out of $ 64.66 for $ 30.47. In other words, Micron is just about a highly relevant technical turning point.
With the confluence of extremes in CMF and RSI, and the extreme Fibonacci level achieved, there is a good chance that a rebound will start soon. Now nothing in technicals is perfect. At CNBC, an analyst took the most extreme technical indicators that he could find and extrapolate at a low cost of $ 20 for Micron.
Micron was the best performing S & P 500 store in 2017 with a 88% profit. I think the store is in place for another epic-running . As discussed above, the time frame in question is however due to economic issues and trade issues. We will know in the next few months if the economy is worse or better.
Taking a long position in Micron is difficult without knowing the direction of the economy. I’m especially careful now to take leverage on the call, because we are not yet aware that I have a timeframe for the catalysts to materialize.
<img src = “https://static.seekingalpha.com/uploads/2018/12/18/295940-15451950121039646.png” alt = “Micron Revenue Growth vs. Stock Price  Here we see Micron’s revenue growth and share price, both of which fall out of a cliff. It’s obvious that we have to see the revenue increase flat and then rise again for the price to follow. Again, Micron lowered the bar and the bottom is in sight, possibly the next quarter.
So My strategy for Micron is to use it to generate portfolio revenue of which sells cashed rates a little of the money a month or two. The prizes are high and the stock price is close enough to the bottom like me; willing to take my chances