Micron recognizes reality and receives a relief rally

Finally, Micron Technology Inc. accepts the reality of the memory circuit decline, and investors seem to be breathing a sigh of relief.

On Wednesday, Micron

M0, -0.59%

reported second-quarter earnings, with revenues of $ 5.8 billion, down 21% from the previous year, citing "poorer than expected price developments" for both dynamic random access memory chips (DRAMs) and NAND flash memory, a sharp contrast from the last two years, when it saw revenue and earnings soar in the middle of a memory chip boom.

Read more about Micron's strong performance in 201[ads1]8.

Although the forecast for the third quarter was actually worse than expected, Micron shares jumped in the after-trade and increased almost 5% during the year . The company's conversation with analysts. The Boise, Idaho-based company said it will cut back on the production of memory cards, as the industry is working through the gluten of chips already on the market. In addition, it will cut investments by $ 1.5 billion for the rest of the year.

Analysts said production was good for Micron and the general industry.

"They cut capacity utilization by 5% is usually perceived as a very good thing to bring the market back to balance (hence good for price recovery)," said Mark Newman, an analyst at Bernstein Research in an email.

Micron's move to reduce capital expenditure was also a bit of a shift in the position of CEO Sanjay Mehrotra, who has categorized today's decline as a temporary blip in an industry that is no longer cyclical, due to so many different demand drivers. With this move, he showed that he is willing to respond to major market changes, instead of fighting the ongoing downturn.

Read a MarketWatch interview with Mehrotra about how the memory circuit market is structurally different in a post-PC world.

"Many investors see the slow wafer starting and lowering capex as an acknowledgment of Micron's leadership that this is a downturn (a mini, in our opinion), and that they are focused on reducing supply rather than ignoring it "Cascend Securities analyst Eric Ross said," the company is still pointing to a boost in the second half of the calendar year.

In the quarter, Mehrotra and Micron CFO David Zinsner said they expect the second half of 2019 to be better, although recognizing that "visibility remains low and the short-term environment is still challenging."

All chipmakers say that the second half will be better, but at least investors now know that Micron's top managers are prepared to Change based on facts, contrary to their beliefs.

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