Micron recognizes reality and receives emergency rally

Micron Technology Inc. finally accepts the reality of the slowdown in memory, and investors seem to sigh with relief.

Wednesday, Micron

MU, -0.59%

The group posted a profit of $ 5.8 billion in the second quarter, down 21% from the previous year, according to "lower-than-expected price trends" for dynamic random access memory chips (DRAMs). ) and NAND flash memories. In the last two years, revenue and profits have skyrocketed in the midst of a memory boom.

Learn more about The good results of Micron in 2018.

Although its expectations for the third quarter of the year were actually worse than expected, Micron's shares surged after trading, rising almost 5% during the analyst conversation. The Boise, Idaho-based company has announced that it will reduce its memory chip production because the industry is operating due to the glut of chips already on the market. In addition, it will reduce capital expenditures by $ 1.5 billion for the rest of the year.

Analysts said the reduction in manufacturing was good for Micron and the entire industry.

"They reduce the capacity utilization by 5%, which is generally perceived as a very good thing to restore the market equilibrium (so for the price recovery)," said Mark Newman, analyst at Bernstein Research, in an email.

Micron's decision to cut investment spending has also been a bit of a shift from CEO Sanjay Mehrotra, who called the current slowdown a snap in an industry that is no longer cyclical because of the demand engines. With this gesture, he showed his willingness to react to major changes in the market rather than fight against the current slowdown.

Read a MarketWatch interview with Mehrotra on the structural difference of the memory chip market in a post-PC world.

"Many investors see the slowdown in platelet sales and the reduction in operating expenses as recognition by Micron's management that this is a slowdown (a mini, in our view). and that they focus on reducing the analyst offer at Cascend Securities. In addition, the company is still planning a reinforcement in the second half of the calendar year, he said.

Mehrotra and Micron's chief financial officer, David Zinsner, have stated that they expect the second half of 2019 to be better, while recognizing that "visibility remains low and the environment in the near term remains difficult. ".

All chip makers think the second half will be better, but at least investors now know that Micron's senior executives are willing to change based on facts, contrary to their beliefs.

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