Amid Wall Street skepticism that the memory-chip party will continue, Micron Technology Inc. tried to convince analysts on its conference call Tuesday that there is still strong demand, with many new markets for memory chips that are just getting started.
reported a better-than-expected fiscal fourth quarter and its outlook for the first quarter also surpassed expectations. But its stock did a roller-coaster dip and rise in after-hours trading, initially falling on a bigger-than-expected forecast for capital spending of $7 billion for fiscal 2018. Micron has benefited from a big upsurge in memory-chip prices in the past year, with its shares up about 52%, compared with the S&P 500’s
10% gain year-to-date.
The company’s guidance for the first fiscal quarter was much better than expected. Micron is now looking for revenue in the range of $6.1 billion to $6.5 billion, compared to consensus estimates of $6 billion, according to FactSet, and earnings per share between $2.09 and $2.23, compared with analysts’ estimates of $1.82.
Sanjay Mehrotra, Micron’s president and chief executive, told the company’s still-cautious investors that he believed there are “very solid secular trends here that are long term in nature,” in response to a question about the sustainability of the current memory-chip cycle, citing expanding business in smartphones, flash memory and cloud-computing data centers
It’s understandable why investors are jittery about the current memory-chip boom cycle. The swings in the memory-chip business are responsible for the boom and bust cycles in the semiconductor industry, and the last cycle ended just a few years ago, when Micron announced a 2012 deal to buy one of its rivals, Japan’s Elpida, for a bargain-basement price of $2.5 billion.
“What’s different about the memory cycle this time is that you have consolidation, of course, but you also have a shift in the demand trend,” said Betsy Van Hees, an analyst with Loop Capital Markets. “You are not as heavily reliant on the PC anymore.”
She noted that servers in data centers are now requiring far more memory, as are smartphones, and more and more devices are getting rid of solid-state hard drives and turning to all-flash memory.
“So I think the party is going to come to an end, but it will be very soft landing,” she said.
Whether investors will believe that new markets will continue to suck up all the memory chips available is a big question. With the economy still rolling along, it’s hard to poke too many holes in Micron’s projections, at least for now.