So what's the problem?
It wasn't just the lower-than-expected earnings management guided for the first quarter of Micron's fiscal year 2020. It was the reason for the poor guidance.
The stock fell 5.60% to $45.88 a share Friday.
Before we get into what investors and analysts didn't like, let's go over what happened first.
Earnings & Guidance
Adjusted earnings per share for the fiscal fourth quarter came in at 56 cents, beating Wall Street estimates of 51 cents. Revenue was $4.87 billion, beating analysts estimates of $4.588 billion.
Revenue guidance came in at $5 billion, plus or minus $200 million for its fiscal first quarter, ahead of analyst estimates of $4.8 billion. But Micron forecast adjusted EPS of 46 cents, plus or minus 7 cents, below analyst estimates of 53 cents per share. The company expects a gross margin of roughly 26%, lower than Wall Street's expected 27%.
Gross Margin in Focus
Analysts are saying lower average selling prices are the culprit behind the lower-than-expected gross margin. Semiconductor investors have been searching for the "bottom" in chip pricing, as a supply glut first rocked the industry in late 2018. After several missteps with analysts trying to find the pricing bottom, trough and rebound, it now seems 2021 could be the "rebound" year.
But with Micron's poor margin outlook, analysts and investors are sensitive to pricing trends. "We were cautious on the memory cycle in calendar year second half 2019 relative to expectations as we believed there still existed excess NAND and DRAM inventory, and while improving, had not bottomed and pricing was still competitive, especially in NAND," wrote analyst Rajvindra Gill of Needhma & co. in a Friday morning note. "This call proved correct as MU's gross margins were affected, in large part, by competitive pricing and excess NAND inventory in the older nodes."
Susquehanna Financial analyst Mehdi Hosseini wrote "we were disappointed with the guide and 2020 outlook, implying more than 400 basis points of gross margin contraction from August to November," in a Friday morning note.
The Good News
Both analysts raised their price targets because there is still visibility into that 2021 pricing and revenue growth rebound.
Gill raised his price target to from $50 to $60 a share as "we foresee several catalysts for the memory cycle, namely 5G smartphones (DRAM content possibly 2x), a rebound in hyperscaler spending and normalized supply/demand."
Hosseini raised his price target from $30 to $45 as "we have incremental confidence in the current (down) cycle bottoming with higher earnings to be followed in 2021."
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