Micron (MU) Earnings: How I React to Stock Movement


I sometimes like to take a somewhat contrarian view of a certain type of information. When a company announces cutbacks, for example, that’s not always a bad thing. Sometimes it’s careful management that allows a company to weather tough times and emerge leaner and stronger. Depending on the timing, this can actually be a good thing. That’s how I feel this morning on hearing that Micron Technologies (MU) is cutting about 10% of its workforce and suspending bonus payments, along with other reductions.

My bullish view on this news, however, is not the one the market seems to be sharing right now, as MU is trading in this morning’s pre-market around 4% below yesterday’s close.

This is a decline that began when Micron reported earnings after yesterday’s close, and it’s unclear how much of it is attributable to the loss of those earnings and how much to the announcement. reductions. The last quarter certainly hasn’t been a good one for the company, which posted a bigger loss than analysts expected due to weak revenue and, more importantly, expected bigger losses at the future.

A decline in the stock isn’t a surprise, but the weak quarter itself wasn’t much of a surprise either. Micron makes and sells semiconductors, and it’s an industry that’s been hit hard by what’s happening in the world. The supply issues currently plaguing companies like Apple (AAPL) are primarily due to disruptions in China; if companies like Apple don’t make products, they don’t order chips. This lack of demand is clearly visible in a graph of DRAM memory price so far this year:

DRAM Spot Price

If weak sales, weak commodity prices and weak earnings weren’t a surprise, why is the stock reacting so badly? Obviously, the main reason is that they were worse than expected, but also, the cuts will also have affected the mood of traders. There is always a tendency to see this as bad news piled on top of bad. It shows that a business is resigned to lower sales for a while, but in some ways that may not be all bad.

Markets look ahead, but immediately after an announcement like this, they often punish companies that do the same.

For me, I’d rather own stock in a company where management is realistic, maybe even a little pessimistic, about what the future holds, compared to, say, AMC Entertainment (AMC), which is leaning towards the opposite approach. AMC management has been painting a pretty rosy picture for some time now, talking about a strong comeback for theaters and the like when updating and renovating properties. However, AMC continued to struggle, as evidenced by the announcement this morning of a new capital increase.

Micron’s actions are in stark contrast to this. Management is proactively preparing for a downturn; the irony is that their actions and those of other industry players may actually improve market conditions next year. As mentioned, semiconductor prices have been under pressure this year, but it’s not just about demand. There’s also a supply component, as there is with any commoditized product, and MU’s general reductions included a steep reduction in proposed capital spending over the next couple of years. If this is reflected by others in the industry, which it likely will be, then the supply outlook for chips will change and this will be reflected in the price early next year.

A word of warning. I’m not rushing to buy MU yet. The pepsi eye on the new year. Management did what it had to do in light of current conditions, but this is an industry with a history of volatility. History tells us they will rebound strongly before too long. Traders know this and are anticipating a rebound long before it happens, which means next year may not be as bad for MU as last night’s news might lead you to think.

* In addition to contributing here, Martin Tillier works as a research lead on the SmartFI crypto platform.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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