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Micron Technology Inc. gave investors some holiday cheer Wednesday, but without any idea of what the new year will actually bring.
Micron MU, +0.08% reported a huge drop in its fiscal first-quarter net income Wednesday, continuing a pattern of steep declines that have helped pull down the entire tech sector’s earnings performance this year. Chief Executive Sanjay Mehrotra confidently predicted that the current quarter would be the bottom of the downturn, however, sending shares up more than 4% in after-hours trading.
“We are calling fiscal Q2 as the trough,” Mehrotra reiterated to MarketWatch in a brief phone interview Wednesday evening.
While he forecast a bottom, Mehrotra gave no other indication of whether Micron can return to the stunning growth rate it experienced before this year’s swoon. Micron’s revenue grew 64% in fiscal 2017 and 50% in fiscal 2018, as a surge in demand for memory chips fueled higher prices and tight supplies.
For more: Two struggling industries could demolish tech’s earnings season
When MarketWatch asked Mehrotra on Wednesday whether Micron will rebound to the heights reached in 2018 or somewhere in the middle, he declined to give guidance beyond the current quarter. He did point out that the company’s results in this semiconductor downturn have been much better than during the last downturn of 2016 — in its call with analysts, executives pointed out that Micron had negative free cash flow of about $1.3 billion in its trough quarter of fiscal 2016, but generated positive free cash flow in the quarter reported Wednesday.
“The new Micron, we call it, is in a very different place,” he said.
“There will be continuous improvement, and in Q3, gradual recovery, and continuous momentum in Q4,” Mehrotra said.
Mehrotra at least is no longer contending that the “new Micron” is not prone to industry downturns. During 2018, Mehrotra told MarketWatch that the industry’s big cyclical swings of demand and supply were much shorter, lasting only one or two quarters, because of the vast demand for semiconductors from new areas such as data centers and automotive uses. This current downturn has been going on since the third quarter of 2018.
See also: Micron stock climbs to highest price in more than a year as memory-chip optimism swells
Mehrotra and other Micron executives highlighted current good demand from cloud-computing providers, and an eventual boost from 5G networks, which require more memory per device. Cloud companies were among the culprits in the downturn, along with PC makers and server makers that had to use up the big piles of chip inventories they purchased in 2017 and 2018, when prices spiked amid tightening demand and caused a panicked spending spree.
After holding off on purchases for the past year, Micron believes those customers are ready to buy again in 2020. The question that remains, if Mehrotra is right about the bottom, is where the top actually is once they start buying again.
