| -27.0% [19659000]] Data collected from Micron revenue releases. [19659060] DRAM Bit growth was down great despite Micron expecting "up" bit growth this year.
The prices ("ASPs") for both DRAM and NAND are obviously only getting worse (see the grid above).
It doesn't get any better.
The company cited several factors on their earnings requiring deterioration of trends, including the following:
This was the last quarter.
- "Steep" stock reductions at some customers.
- Macro impairment.
- Intel's chip shortage extending.
- Unwanted memory and storage pricing. "
- " Weakness of smartphone sales "
And for the next quarter, Micron expects more of the same. Here's what they said for next quarter:
" Since our last earnings call, DRAM inflation has depreciated more than expected. Our demand prospects for calendar 2019 have moderated, due to somewhat higher levels of customer information, weakening of server demand among several OEM customers and poorer than expected CPU shortages. We believe that macroeconomic uncertainty also contributes to tough buyer behavior among some customers. "
Let's go through it;" weakened "" moderate "" deterioration "" worse than expected "" uncertainty that contributes to hesitation. "
It sounds like last year. It continues to get worse
But now, listen to what they said about the back half. Please let me know if you think it makes sense.
As we discussed on our last earnings call, we still expect DRAM bit mailings to start increasing in our 3rd quarter, with demand growth improvement in the second half of the calendar 2019 that most customer information is likely to normalize in the middle of the year "
So while things only:
" weakened "" moderated "" weakening "" worse than expected "" uncertainty that contributes to [new] hesitation "" Unwanted memory and storage pricing "" weakness in high-end smartphone sales "
They should" as discussed ", hopefully," strengthen "in the second half.
How is it happening?
I have no idea how that happens
Normally, when things get worse, you don't expect better. You expect either a continuation or a settlement, but you do not keep your expectations of hoping for better. I think I said this above. It makes no sense.
Bit consignments just fell out of time. There is no way to trust the future when things are falling.
As mentioned above, DRAM shipments went nicely negative. NAND shipping growth cut in half reaching two quarters in a row.
Our work does not show that Apple (NASDAQ: AAPL) is improving something that will be strongly biased NAND. In fact, we have called out additional earnings risk. Remember, days before Apple's big guide down, we called out risk. We do not hear any signs of Apple turn.
And with regard to the macro, you only had the Fed nickname lower growth, and President Trump calls out that tariffs stick around longer. This decline is getting worse, and the main drivers of that slowdown are getting heavier.
I see no way to have any conviction in Micron's second half comment.
In our work, we also stumbled upon Opportunity for Samsung ( SSNLF ) to begin to become much more aggressive on pricing to clear the inventory. If that happens, it will turn Micron into a vulnerable time now, as their inventory risk builds.
It brings us to inventory.
Inventory Risk
Another irony is that the company is talking about a second half pickup, but they are trying to figure out how to cut the supply. Why cut supply if you're bullish on the back? It also makes no sense. They were asked this question a couple of times on their earnings call.
It's like saying you love a store, but you sell it. If you love it, why sell?
Instead of hearing what they say, see what they are doing. They cut production in front of a big pickup? It doesn't make sense.
We called out Nvidia (NASDAQ: NVDA) risk ahead of their big guide down.
Micron's problem is still building, but it can get worse.
Micron does not contribute to the demanding bullet to cut production fast enough.
They build stocks while demand and ASP are getting worse. They then hope for a second half pickup. Without it, they should have underutilized capacity and a build-up of higher ASP inventory.
They have to bite the bullet and cut production more aggressively and risk losing part to protect their revenue. But they are not. They are hoping for a second half pickup.
If they do not reduce production faster, they will have too much capacity for fewer and fewer units. This will make high fixed unit costs and margins too low.
You already see it in its falling gross margins.
They ruled for 38% gross margins the next quarter, down from 50% in the quarter and 59% in the last quarter. At this pace, I see margins being crushed in the quarter in August and running them to quarterly losses (see full model: paywall).
It's not far away and no one is talking about it.
Let's look at how this settlement problem builds.
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