Bob Ciura: Technology stock Micron Technology (NASDAQ:MU) can’t wait to close the book on 2015. It’s been a brutal year for Micron. Shares are down 58% year-to-date, and Micron stock fell another 5% in after-hours trading Tuesday after the Micron earnings report showed weaker-than-expected quarterly results and offered a tepid future outlook.
At $14 per share, shares of Micron look cheap, trading at just six times forward earnings estimates. At that level, the stock looks ripe for the picking for value investors.
But Micron’s poor results suggest that investors may need to be patient. The company is struggling from the difficult environment for PCs. It could be a compelling turnaround play if conditions improve, but investors could see further downside risk if Micron continues to reduce its guidance.
Micron Earnings Cap a Year Worth Forgetting
Last quarter was another in which Micron suffered a brutal decline in revenue. In the Micron earnings report, the company said sales fell 26% year over year, to $3.35 billion. This fell significantly short of the $3.49 billion Wall Street had expected from Micron in the fiscal first quarter.
The major problem for Micron is the eroding PC industry. PC sales declined 7.7% in the third quarter, according to technology research firm Gartner (NYSE: IT). PC sales have fallen all year, which has resulted in reduced demand for Micron’s core dynamic random access memory (DRAM) business.
As the PC industry contracts, Micron has had to accept lower prices for its PC-related products to move inventory. In a way, its business has become similar to a commodity. Last quarter, Micron’s DRAM average selling prices declined 13% just from the previous quarter. As a result, gross margin fell to 25%, down from 27% in the previous quarter, and 36% in the same quarter last year.
This has had a disastrous effect on Micron’s bottom line, and explains why earnings are collapsing.
One positive note was that Micron continues to keep a laser-like focus on costs. In the earnings release, the company reported $0.24 per share in adjusted earnings. The company beat earnings expectations for the quarter. Analysts expected Micron to earn $0.23 per share.
Still, it is hard to be optimistic about Micron. In the earnings release, although management said it sees the PC market stabilizing, the company will only see growth a bit above-market in fiscal 2016. And, above-market growth is not expected in its NAND business until fiscal 2017.
Forecast Leaves a Lot to Be Desired
Unfortunately, there doesn’t appear to be a light at the end of Micron’s tunnel just yet. Management expects just $2.9 billion-$3.2 billion in current-quarter revenue. This projection is well below analyst expectations, which currently call for $3.46 billion.