Micron lost its top customer, China’s Huawei, to U.S. sanctions. So why is its stock up?
Powered by booming sales during the coronavirus pandemic, Micron Technology Inc. stock is flying high. Its stock on Thursday reached its highest level in the past 20 years.
The Boise memory-chip maker’s shares closed up 1% at $69.90, more than twice the $34.47 recorded on March 16, three days after Idaho Gov. Brad Little issued an emergency declaration over the coronavirus pandemic.
In the quarter ending Sept. 29, Micron reported revenue of $6.1 billion, beating analysts’ projections of $5.5 billion. Revenue was up 24% from a year earlier.
The company is the Treasure Valley’s largest for-profit employer, with more than 6,000 employees mostly at its Federal Way campus in Southeast Boise and 40,000 workers worldwide.
The U.S. trade ban on Chinese company Huawei, previously Micron’s largest customer, did not hurt Micron in the long run, CEO Sanjay Mehrotra said. Huawei is the world’s second-biggest smartphone maker, behind Samsung.
“Our teams did a great job in terms of our ability to shift some of our production from Huawei to other mobile customers,” he said Tuesday at a technology conference.
In May, the U.S. Commerce Department placed Huawei on a list that bars U.S. companies from selling it technology without government approval. The U.S. said Huawei products could allow the Chinese government to spy on sensitive communications. Huawei has denied the allegations
Since Micron was founded in 1978, it has ridden waves of boom and bust cycles. Just last year, sales for the fourth quarter had plummeted 43% from the same quarter the year before. Profits were a quarter of what they were the year before, yet its stock price was still healthy.
AI, VR, 5G, data centers help MU
Mehrotra, one of three founders of Micron rival SanDisk, was hired by Micron in 2017. Within 10 months, the company reported record sales as it shifted to higher-priced specialty products. It has increasingly focused attention on artificial intelligence, virtual reality, big data centers and the move to 5G smartphones.
Amid the pandemic, the demand for cloud-based storage systems has increased greatly. Micron has benefited because the servers needed for cloud storage require lots of memory chips that the company manufactures.
“I’m pleased with how the market opportunities continue to shape up,” Mehrotra said during the virtual technology conference sponsored by investment banking company Credit Suisse. “And I think during calendar year ‘21, as the global economies get past the pandemic, and as global economies grow, the need for more memory and storage will continue to broaden as well.”
Micron has expanded its flash-memory manufacturing in Singapore and added a dynamic random-access memory plant in Hiroshima, Japan.
The stock price rose 35% over the past 52 weeks. Even at the current price, The Motley Fool investment service said it is “difficult to call it expensive, since Micron shares are trading at a very reasonable 10.5 times forward earnings.”
Forward earnings are estimates of a company’s future earnings.
Micron’s stock reached its all-time high of $96.56 on July 14, 2000. The peak came months after the company reported record profits as investors heavily favored technology stocks.
Two years ago, the stock price hit $61.35 before leveling off.
This week’s stock gains came after Micron announced that it expects fiscal 2021 first-quarter earnings of between 61 cents and 65 cents per share on sales of $5.7 billion to 5.75 billion. Previously, the company projected earnings of 32 cents to 46 cents per share on revenue of $5 billion to $5.4 billion. The quarter ended on Thursday, Dec. 3.
During his talk, Mehrotra told Credit Suisse analyst John Pitzer that Micron had seen growth in cloud, mobile, auto, industrial and PC sales, most of the markets in which the company competes.
“We saw strength in both volume as well as pricing versus our prior expectations,” Mehrotra said.
In a filing Tuesday with the Securities and Exchange Commission, Micron reported that Mehrotra earned $20 million in salary for fiscal 2020, compared with $69,000 for the median Micron employee. He made 292 times the salary of the typical employee.
