Memory chip specialist Micron technology (NASDAQ: MU) is up 4% since the June 30 earnings report. It rose as much as 18%, peaking at $65.42 in mid-August, but has since sputtered along with the broad market.
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Micron, as well as others in the memory chip business, saw sharp revenue growth in 2021, as consumers bought smartphones and other computing equipment and companies invested in servers. Over the past three quarters, however, sales growth slowed from 37% to 16%.
That’s still a healthy level, but ideally you’d rather see growth, or at least revenue, stay fairly constant.
Micro has two primary lines of business: NAND and DRAM chips. NAND is most commonly used in storage devices, including SD cards and USB drives.
DRAM chips are used in servers, personal computers and other equipment. DRAM made up the bulk of Micron’s revenue in the most recent quarter.
In terms of market share, Boise, Idaho-based Micron is the third largest memory chip maker after two Korean companies, Samsung and SK Hynix.
Long history of top views
MarketBeat earnings data show something almost unbelievable: Micron has had its highest earnings in every quarter since October 2015. In the most recent quarter, however, the company missed revenue expectations.
Earnings came in at $2.59 per share, up 38% from the same quarter a year ago. Revenue of $8.64 billion was up 16%.
But remember: markets look forward, not backward. A strong history of earnings and revenue growth can certainly indicate good management and solid demand for a company’s products or services. But ultimately, investors buy into future potential.
When the company reported, Micron provided disappointing expectations for the current quarter. It expects to earn $1.63 per share on $7.2 billion in revenue. Wall Street was eyeing earnings of $2.60 a share and revenue of $9.15 billion.
Those are pretty steep differences on both the top and bottom lines.
At the time of the earnings release, Micron cited slower sales of computers and smartphones, higher-than-expected inventory of some products and weakness in China.
Another company with supply chain problems
More recently, the company scaled down its short-term view, focusing on “macroeconomic factors and supply chain constraints.”
However, it is easy to see that any drop in demand would be temporary. It’s not exactly like chip manufacturers or their electronics manufacturing customers are in dying industries.
Earlier this month, Micron said it would invest $40 billion in memory chip production, supported by grants as part of the CHIPS and Science Act, which President Biden signed on Aug. 9. Micron expected to create 5,000 new jobs as part of the spending.
It is looking for a location near Austin, Texas, to build a new factory.
Micron also has its quarterly dividend by 15%, to $0.115 cents a share. The dividend is set in 2021 and the current yield is 0.72%.
Despite the expected decline in earnings, the dividend is a sign that managers have long-term confidence in the company’s ability to deliver results for shareholders. It can also serve as a temptation for investors to hold onto their stocks during a downturn. If you get some sort of return through the dividend, that would help (at least somewhat) offset price drops.
On the chart, Micron is trading below the 10, 21, 50 and 200 day moving averages. That’s worth noting because it means the stock has little upward momentum at the moment, despite the recovery with the broader market on Monday morning.
Micron is tracked in the S&P 500, although with a weight of just 0.187615% you won’t see the stock impacting broad market direction. Instead, Micron is more likely to be swept up in a broad market trend.
Micron appears to be a company with a lot of future potential, despite being currently in the doldrums. The dividend hike is a way for the company’s managers to show their confidence. For investors willing to take a correction, the stock may be worth investigating. For those who don’t like paying opportunity costs as a stock’s price languishes, it could be one to follow as the market and chip industry eventually recover.
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