All Eyes Will Be On Micron’s DRAM Business As It Reports Q2 Results

Micron (NYSE:MU) is expected to publish its Q2 FY’19 results (the quarter ended in February) on March 20, reporting on a period that likely saw the company’s business slow down meaningfully due to falling DRAM and NAND prices. For the quarter, the company has guided for revenues of $5.70 billion to $6.30 billion, translating into a revenue decline of ~18% compared to the prior-year period. Meanwhile, EPS is projected to stand at $1.75, plus or minus $0.10, marking a decline of about 40% at the midpoint year-over-year. We will be closely watching the performance of the DRAM business, which is likely to see sharp declines, after being the biggest driver of the company’s earnings over the last several quarters.

Our interactive dashboard analysis on What’s The Outlook Like For Micron In Q2 FY’19? details our expectations for the company going forward. You can modify any of our key drivers and forecasts to gauge the impact that changes would have on the company’s results.

The DRAM market entered a phase of oversupply over the fourth calendar quarter, after a run of nine consecutive quarters of price growth. Micron, for instance, noted that its DRAM ASPs were down in the high single digits percent range on a sequential basis during Q1’19 (ended November). The price declines are expected to be much sharper over the first calendar quarter, particularly for the PC DRAM market, with DRAMeXchange projecting that contract prices for this variety of memory could be down by as much as 30% for the quarter. This is partly due to higher inventory levels with DRAM vendors and also due to a shortage of low-end CPUs from Intel, which is holding back the consumption of DRAM chips. Moreover, unlike NAND chips, which see some price elasticity of demand (volumes rise in response to falling prices), demand for DRAM chips are relatively inelastic, meaning that price declines are often sharper.

Micron, for its part, has indicated that it would be lowering its DRAM bit output growth to ~15% for this year, but it’s unlikely that this will meaningfully help the company in an oversupplied market. As prices are likely to be falling faster than the company’s per-bit costs, gross margins are also likely to see a decline to between 50% to 53% (on a Non-GAAP basis) per the company’s guidance.

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