Micron Technology Inc. is rolling thanks to a sharp increase in memory chips that is hurting other tech giants, and the company doesn’t see the party ending anytime soon.
a nearly 40-year-old chip maker, said second-quarter revenue soared 58% to $4.65 billion, fueled by strong demand and higher prices for its memory chips, as well as manufacturing efficiencies that drove costs down. Overall consolidated gross margins soared to 36.7% of revenue, up from 20% a year ago.
Tight supplies and heavy demand for the DRAM and NAND memory Micron produces led to a price spike, hurting some hardware companies’ financial results, including HP Inc.
, Hewlett Packard Enterprise Co.
and Cisco Systems Inc.
Micron broke down the extreme swing in prices and demand Thursday: DRAM memory chips jumped 21% in price from just the previous quarter, while NAND sales volume jumped 18% in the same period.
The big question, as always in a feast or famine sector that is known for dramatic price cycles, is when the current pricing and demand cycle will end. Micron CEO Mark Durcan acknowledged that some investors have, at recent tech conferences, implied that the cycle may be peaking, but denied it.
“People are looking at the cycle and wondering, you know, are we getting long in the tooth, etc.,” Durcan said in a conference call Thursday. “We’re not seeing that at all. … What’s driving this cycle, when you think about it, is broad-based demand across multiple market segments and, in particular, it’s content growth in all those segments, as opposed to particularly strong unit growth in one segment or the other.”
Micron backed up that view with a blowout forecast for the current quarter, predicting adjusted earnings of $1.43 to $1.57 a share on revenue of $5.2 billion to $5.6 billion. That guidance destroyed analysts’ average forecast of 91 cents a share on sales of $4.74 billion, according to FactSet, and helped Micron stock zoom higher in Thursday’s after-hours session.
On Friday, the stock soared 9.6% in active morning trade Friday to the highest level seen since May 2015. Volume topped 37 million shares in the first half hour after the open, surpassing the full-day average of about 26 million shares, and enough to make the stock the most actively traded on major U.S. exchanges.
That also helped boost shares of Western Digital Corp.
which shot up 4.7% in early trade Friday.
“We are heading into the third quarter with the strong market environment and steady progress on our technology initiatives,” Durcan said.
When one analyst started off the conference call asking about investor concerns that computer and device makers may start to “de-spec,” or downgrade, the amount of memory in their systems offerings because of higher component prices, Durcan said he had not observed this happening yet.
“We’ve seen no indication of that at all, really, in any segment,” Durcan said. “It’s true that in cycles, from time to time, that does happen late in a cycle, but today we see continued strong growth across almost every end market segment and no real indication of that occurring anywhere in particular, not in specialty, not in mobile, certainly not in the enterprise and server area.”
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The company also acknowledged that more customers are trying to establish more longer-term contracts, as a way of guaranteeing more supply. Micron executives said that there are some customers in this kind of environment that are “interested in lengthier relationships.”
We have seen these types of dramatic changes in memory chip prices before, and they inevitably head the other way once the supply and demand issue evens out. Micron seems to believe this cycle will continue, which would be good for Micron investors but bad for large tech companies that are paying the price.