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Micron Rises as CEO Calls the 'Bottom' in Memory Chip Demand

Shares gain after the chipmaker says it's optimistic its fiscal second-quarter earnings will mark a 'bottom' in terms of its financial performance, reinforcing expectations of a rebound in sales and earnings driven by stronger demand for memory chips.

Shares of Micron Technology  (MU) - Get Micron Technology Inc. Report gained on Thursday after the chipmaker said it was optimistic that its fiscal second-quarter earnings will likely mark a “bottom” in terms of its financial performance, reinforcing expectations of a rebound in sales and earnings driven by stronger demand for memory chips in computers and portable storage devices.

The Boise, Idaho-based company after the bell on Wednesday reported net income of $491 million, or 43 cents a share, vs. $3.29 billion, or $2.81 a share, a year ago. On an adjusted basis, earnings came in at 48 cents a share, above FactSet estimates of 47 cents. Revenue declined to $5.14 billion from $7.91 billion in the year-ago quarter.

Driving investor optimism, however, was CEO Sanjay Mehrotra’s expectations that the company’s fiscal second quarter marks what he sees as the beginning “the cyclical bottom for our financial performance.”

“Our base-case assumption, on which all our projections are based, assumes that there are no perturbations to the demand environment due to macroeconomic conditions or trade-related developments,” Mehrotra said on the post-earnings conference call.

“In DRAM, there has been a strong recovery in the second half of calendar 2019, and our view of calendar 2019 industry-bit demand growth has increased to approximately 20%,” he said. 

Revenue will be as much as $4.8 billion in the fiscal second quarter, Micron said in the statement, above analysts’ current projections of $4.7 billion. Adjusted earnings will be 35 cents a share, plus or minus 6 cents, the company said. Analysts are currently expecting per-share earnings of 47 cents.

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Micron specializes in DRAM and NAND memory chips. DRAM, or dynamic random access memory, is the type of memory commonly used in PCs and servers, while NAND chips are the flash memory chips used in USB drives and other portable storage devices.

Separately, Micron said on Wednesday that it has “received all of the requested licenses that enable us to provide support for certain products” to Huawei Technologies for its mobile and server businesses.

The U.S. government earlier this year implemented a ban on Huawei from doing business with U.S. companies, citing national security. Micron and other chipmakers have applied for licenses to exempt them from the ban.

Micron said on Wednesday that it doesn't expect the ban to have a “material impact” on revenue for the next couple of quarters.

The results and optimism weren't quite enough for Wedbush Securities' analyst Matt Bryson, who wrote in a research note Thursday that one of his group's main beefs with Micron is "management’s expectation for a gradual rebound in markets."

"As the past few years have shown, price degradation during a period of oversupply is anything but gradual," Bryson wrote. "In turn, we believe if we are correct, and markets move into undersupply—in CQ2/CQ3—the rebound in memory pricing will be dramatic."

Shares of Micron were up 2.56% at $54.40 in morning trading on Thursday. They closed at $53.04 on Wednesday, leaving them up 67% this year. The stock has rallied more than 10% in December, with the stock gaining nearly 5% on Monday alone after receiving nods from two other Wall Street analysts, who both boosted their outlooks and one-year price targets.