Micron Technology: Why Shares Fell Over 18%

Micron TechnologyMicron Technology, Inc. (NASDAQ/MU), America’s largest maker of memory chips drew in far less revenue than expected, prompting a sell-off that sent the stock spiraling more than 18%. (Source: The Wall Street Journal, June 25, 2015.)

The company’s stock price cratered early on the morning of Friday, June 25th, losing them roughly $5.36 billion in market capitalization. The share price plunged over 18% in a single day.

Micron’s revenue dropped 7.5% between the second and third quarter, from $4.17 billion to $3.85 billion. Although lower revenues were expected, the contraction was more forceful than analysts expected. (Source: Micron Earnings Presentation, June 25, 2015.)

As a result, earnings per share (EPS) fell quarter-over-quarter from $0.78 to $0.42.

The missed earnings were mainly caused by a dramatic decline in the company’s core business. Dynamic random access memory, or DRAM, chips are an essential ingredient for personal computers.

From the beginning of 2011 to the end 2014, a consolidation of market share left Micron as the largest North American supplier of DRAM chips, leading to 300% growth in the company’s share price.

However, lower demand from PC makers has weighed heavily on Micron since January. Year-to-date, the stock is down 44.2%. Overall consumer demand was weak in the first quarter, mostly because of bad weather and economic uncertainty.

Yet, analysts believe the reduced demand for DRAM chips is not an isolated or cyclical event. They believe a permanent shift is taking place in how customers use technology.

A Gartner report reveals that PC sales growth is estimated to be anaemic, at 0.94%, whereas tablet sales will likely advance eight percent in 2015. Moreover, around 1.9 billion smartphones will be sold this year.

Rather than desktops or laptops, consumers are choosing tablets and smartphones, making mobility the basis of competition. (Source: Gartner, January 5, 2015.)