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Shares of Micron Technology Inc. were falling more than 3% in Thursday morning trading after the memory company said it expected a steeper head-count reduction than it previously disclosed and warned that its margins for the May quarter are likely to be worse than management anticipated.
“We continue to expect improving demand through the year, but pricing trends remain challenging,” Micron
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Chief Financial Officer Mark Murphy said at a Susquehanna investor conference Tuesday, according to a transcript provided by Sentieo/AlphaSense. “Consequently, we expect lower margins in our fiscal [third quarter] than we previously expected.”
The new outlook “may lead to material inventory write-downs,” he continued. These “could or would have an adverse impact on our second-quarter margins” and on earnings per share, he said.
Murphy spoke of a “significant supply/demand mismatch in the industry” that continues despite recent actions by those in the industry to reduce supply.
In terms of customer inventories, certain markets, such as mobile, are better than others, like the cloud, he said. The company anticipates improving demand — a trend that could “support what we see as volume growth through the year.”
The company has been working to reduce its spending in light of market conditions, and Murphy said that Micron’s “broad-based spend reductions are generally coming down in-line to ahead of plan.”
“For example, on labor, head count is now projected to be down approximately 15% versus the 10% we discussed on our December earnings call,” he said Thursday. At the same time, he noted that “labor and other reductions will take some time to work through.”
In response to the commentary, Wells Fargo analyst Aaron Rakers noted in a client report that Micron didn’t quantify the magnitude of the expected inventory write-down that Murphy teased.
Rakers added: “In addition to the potential margin hit (now expect [gross-margin percentage] to likely turn negative), the impact to [Micron’s] book value will be a focus — i.e., can [Micron] sustain a high-$30 / $40+ tangible book value?”
He rates Micron’s stock at overweight with a $70 target price.
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