30 September 2020

Investors Bearish on Micron Despite Strong Q4 Print

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What’s happening: Shares of Micron Technology Inc. fell in extended trading on Tuesday despite the chipmaker reporting better-than-expected results for its fiscal fourth quarter.

What happened: The Boise, Idaho-based company nearly doubled its net profit versus last year, driven by strong demand for memory chips amid the covid-19 pandemic.

Micron saw its shares heading south, however, as investors focused on its disappointing guidance and the loss of one of its biggest customers.

How were the results: The chipmaker reported strong growth in sales and earnings for the fourth quarter, with both metrics surpassing estimates.

  • Revenues climbed to $6.06 billion, from $4.87 billion in the same quarter last year, and surpassed the consensus view of $5.89 billion.
  • Net income came in at $988 million, or 87 cents per share, up from $561 million, or 51 cents per share in the year-ago quarter.
  • Adjusted earnings surged to $1.08 per share, from 56 cents per share in the fiscal fourth quarter last year, beating the consensus estimate of 98 cents per share.

Why it matters: Work-from-home trends amid the pandemic have driven the demand for cloud computing and laptop computers, lifting sales of memory chips. Micron further noted that its results were propelled by the strong demand for chips used in gaming consoles.

Although the company saw lower demand from corporates due to IT budgets being slashed, the mobile and consumer markets made a strong rebound.

“We look forward to improving market conditions throughout calendar 2021, driven by 5G, cloud and automotive growth, and we are excited by the continued momentum in our product portfolio,” CEO Sanjay Mehrotra said.

While management maintained a positive tone, their announcement of halting shipments to Huawei Technologies Co stroked investor concern. Huawei, one of Micron’s largest customers, has been facing sanctions and other restrictions imposed by the US government. Although Micron has applied for new permits to service the Chinese company, management said they were unsure when or even whether those will materialise.

Micron projected its first quarter revenues between $5 billion and $5.4 billion and adjusted earnings in the range of 40 to 54 cents per share, significantly lower than market expectations of 66 cents a share.

How shares responded: Micron’s shares plunged 3.9% to $48.74 in after-hours trading on Tuesday following the announcement of quarterly results. The stock has lost 5% year to date, versus a 24% spike in the Nasdaq index to which it belongs.

What to watch: With Huawei's business accounting for approximately 10% of Micron’s overall revenues, investors will keep an eye on news related to the new permits. Markets will also look out for progress in the 5G mobile broadband rollout

The Markets Today

     

Oil will be in focus today, ahead of the EIA’s (Energy Information Administration) report on crude inventories.

Context: Oil dropped sharply on Tuesday, reaching its lowest settlement in two weeks. Crude prices have been struggling to rise amid growing concerns over restrictions being reimposed in Europe due to the rising covid-19 cases.

Details: Investor sentiment has remained subdued with the world’s largest economy continuing to be the covid-19 hotspot. The global death toll from covid-19 rose past the one million mark, with the US reporting over 200,000 fatalities and accounting for more than one-fifth of the total 33.5 million confirmed cases.

Meanwhile, prospects of disruption to oil production in Norway provided some support to oil prices. Amid oversupply concerns, investors welcomed news of the Norwegian Oil and Gas Association possibly shutting down around 22% of its total output due to a strike by oil workers.

Investors also took solace from the American Petroleum Institute’s (API) reporting an unexpected decline in US crude inventories by 0.8 million barrels in the week ending September 25. However, such developments could not prevent oil prices from sliding.

WTI (West Texas Intermediate) crude for November delivery dropped 3.2% to close at $39.29 per barrel, after rising by 0.9% on Monday.

November Brent also dipped 3.3% to settle at $41.03 per barrel, after recording a 1.2% rise in the earlier session. Both US and Brent futures finished at their lowest levels since September 15.

November natural gas tumbled 8.4% to settle at $2.561 per million British thermal units on Tuesday.

What to watch: Investors await the EIA’s data on crude oil stockpiled. Analysts project a rise of 1.9 million barrels in crude supplies for the week ending September 25. Gasoline supplies and distillate inventories are expected to decline. Markets will also continue to monitor the covid-19 numbers.

Other Markets: US indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.48%, 0.48% and 0.29%, respectively.

Support & Resistances
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market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s unemployment change and unemployment rate, South Africa’s inflation rate and balance of trade, Spain’s current account, Bank of England’s FPC meeting, Italy’s inflation rate, Saudi Arabia’s GDP growth rate and balance of trade, Brazil’s unemployment rate, government budget value and net payrolls, Canada’s GDP, Russia’s money supply M2 as well as the US MBA mortgage applications, ADP employment, GDP growth rate, Chicago PMI and pending home sales.

 

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