01 April 2021

Micron’s Shares Spike on Upbeat Earnings

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What’s happening: Shares of Micron Technology gained in extended trading on Wednesday, after the company reported stronger-than-expected results for its second quarter.

What happened: Micron, the biggest manufacturer of memory chips in the US, witnessed robust demand for semiconductors, which helped it report exceptional results and issue a strong forecast for the current quarter.

The company is also exploring the possibility of a deal with a Japanese semiconductor company to increase its manufacturing capabilities.

How were the results: The Boise, Idaho-based company reported healthy sales growth for the second quarter, with both top- and bottom-line metrics exceeding market views.

  • Revenues surged 30% year-over-year to $6.24 billion, exceeding the consensus estimate of $6.21 billion.
  • Net income, excluding onetime items, came in at $1.1 billion, or 98 cents per share, surpassing market expectations of 95 cents per share.

Why it matters: The maker of NAND memory and DRAM chips benefited from the pandemic, with work- and learn-from-home trends resulting in higher demand for chips.

The global semiconductor shortage has also sent memory chip prices higher in the recent quarter. “Micron's strong fiscal second-quarter performance reflects rapidly improving market conditions and continued solid execution,” CEO Sanjay Mehrotra said.

With the pace of the covid-19 vaccine rollout differing among countries, the global economy is likely to rebound in stages, Mehrotra noted. He added, however, that the demand for memory chips is likely to remain strong through 2021 and into 2022.

Micron expects the supply of DRAM chips to fall short of demand this year. Although management has lifted their sales and profit projections for the current quarter, the company does need to ramp up supply to capitalise fully on the favourable trends.

Investors were concerned when Micron issued a warning related to the drought in Taiwan, which is considered the worst in 67 years. The situation has impacted water supply to the company’s DRAM factories in the region. Mehrotra reassured stakeholders by stating, “We are accelerating our water conservation efforts and have secured alternative sources of water. “At this time, we do not see an impact to DRAM production output; however, this is a developing situation that we are monitoring closely for the next several months,” he added.

The company guided to revenues of $7.1 billion, plus or minus $200 million, for the current quarter, higher than the consensus estimate of $6.85 billion. Adjusted profits were projected at around $1.62 per share, plus or minus 7 cents, also exceeding the Street expectations of $1.34 per share.

Meanwhile, Micron and Western Digital are reportedly exploring a deal for Japanese computer memory manufacturer Kioxia Holdings Corp valued at approximately $30 billion.

How shares responded: Micron’s stock spiked 4.1% to $91.78 in after-hours trading, after adding around 2% during the regular trading session. The stock had gained around 25% over the past three months.

What to watch: Investors expect Micron to record strong results this year but will keep an eye on how the company ramps up its production of chips to meet the higher demand. Markets will also monitor the ongoing talks with Kioxia Holdings, as a deal with the world's second-largest maker of flash memory chips could provide a major boost to Micron’s prospects.

The Markets Today

     

US stocks will be in focus today, ahead of a basket of economic reports scheduled for release during the day.

Context: Although US stocks ended mixed on Wednesday, they recorded gains for both March and the first quarter.

Details: Investors bought high-growth technology stocks on Wednesday, ahead of President Joe Biden’s infrastructure spending plan.

With investors remaining concerned about corporate tax hikes, the cyclical sectors (including financials, energy, and industrials) recorded losses on Wednesday. On the other hand, the S&P 500 tech sector spiked, adding 1.5%.

Bond yields have trended higher this year, amid a quick covid-19 vaccine rollout and expectations of a strong economic rebound. However, yields on the US 10-year Treasury traded almost flat at 1.73% on Wednesday. This, too, supported tech stocks.

Investor sentiment was also lifted by economic data, reflecting the strongest rise in private payrolls since September 2020. Private companies hired 517,000 workers in March, up significantly from 176,000 in February, according to the ADP report.

Later during the day, President Joe Biden announced his infrastructure plan, worth more than $2 trillion. While this is good news for certain stocks, the budget is funded through tax and is expected to increase the corporate tax rate to 28%.

The S&P 500 rose 0.4% to settle at 3,972.89 on Wednesday, after adding 0.9% to reach a new intraday record high. The tech-heavy Nasdaq 100 surged 1.51% to 13,091.44, with shares of Apple, Facebook and Microsoft trading higher. However, the Dow Jones index bucked the trend, shedding 85.41 points to close at 32,981.55.

The Dow and S&P 500 indices recorded gains of 6.6% and 4.3%, respectively, for the month, notching their strongest monthly gains since November 2020. For the quarter, they added 7.8% and 5.8%, respectively. However, the Nasdaq 100 was the relative underperformer, with big tech stocks remaining under pressure amid rising bond yields.

What to watch: Markets await data on initial jobless claims, manufacturing PMI, construction spending and ISM manufacturing PMI from the US. The number of Americans filing for jobless benefits, which fell to 684,000 in the week ended March 20, is expected to decline further to 680,000 in the latest week. The IHS Markit manufacturing PMI is projected to improve to 59 in March, from 58.6 in February, while the ISM manufacturing PMI is expected to rise to 61.3, from 60.8 in the prior month. Analysts expect construction spending to decline by 1% in February, following a 1.7% rise in the previous month.

Rising covid-19 cases remain one of the top concerns for markets, with total infections in the US surging past 30.4 million.

Other Markets: European trading indices closed lower on Wednesday, with the FTSE 100, German DAX 30, French 40 and STOXX Europe 600 down by 0.86%, 0.01%, 0.34% and 0.24%, respectively.

Support & Resistances
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market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s retail sales and manufacturing PMI, Russia’s manufacturing PMI, Turkey’s manufacturing PMI and foreign exchange reserves, Spain’s manufacturing PMI and new car sales, Italy’s manufacturing PMI, France’s manufacturing PMI and new car registrations, Eurozone’s manufacturing PMI, UK’s manufacturing PMI, South Africa's Absa manufacturing PMI and total vehicle sales, Brazil’s industrial production, balance of trade and manufacturing PMI , India’s balance of trade, Canada’s value of building permits and manufacturing PMI, Russia's gross domestic product as well as the US EIA’s natural gas stocks and Baker Hughes crude oil rigs.

 

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