Micron (MU) Reliance On China Might Drag Its Margins

Micron projects fiscal fourth-quarter revenues of $7.6 billion (+/- $200 million). Consensus estimate for the top line is pegged at $7.64 billion, which implies strong year-over-year growth of 90.5%.

The consensus estimate for earning per share is at $1.11.

With the increasing demand for memory chips, that might be a significant boost for Micron’s fourth-quarter results. The demand is driven by the increasing adoption of graphics processing unit (GPU)-enabled artificial intelligence (AI) servers.

As datacenter operators expand their capabilities with generative AI and large language models, powered by GPUs, memory becomes a critical component. This surge in demand for AI servers is likely to have bolstered Micron’s revenues during the to-be-reported quarter.

An additional factor supporting Micron's performance is the improving supply-demand balance in the memory chip market. For several quarters, Micron had been struggling due to excess inventory across various sectors, which weighed on its financial results. However, the company has seen better conditions over the past three quarters, allowing an increase in prices for DRAM and NAND memory chips, which are core to its business.

There are some challenges that we need to be aware of, they could tempered Micron overall gains. Inflationary pressures and concerns about a potential global economic slowdown have dampened consumer spending, which is likely to have softened demand for memory chips in the smartphone and personal computer markets — two of Micron's key segments.

Micron's heavy reliance on China is a potential downside due to the ongoing trade tensions between the United States and China. The company's margins might also be strained by a higher mix of lower-margin NAND products and only minimal reductions in manufacturing costs.

So we might want to watch how this upcoming earnings would show the costs and margins affected by the downside coming from reliance on China.

Micron has returned a reasonable 9% to investors on its stock price, but I believe there is room for higher stock price, provided that Micron could provide a surprise on its earning result.

I will be watching the margin and its manufacturing costs on the upcoming earnings, there might be some impact on its overall margins and this should be reflected on its stock price.

Based on 26 Wall Street analysts offering 12 month price targets for Micron in the last 3 months. The average price target is $152.79 with a high forecast of $225.00 and a low forecast of $67.00. The average price target represents a 63.29% change from the last price of $93.57.

The price target is too wide and Micron need to clear the $100 in order for us to properly looked at where Micron could move in its stock price.

Based on MACD, Micron has showed the signal of upside movement though not too clear, and KDJ has showed that Micron is having a bullish upside, this might continue after its earning result.

The semiconductor performance on Monday (23 Sep) from Intel have helped Micron before its earnings, but we need to be aware that Micron does have some factors that could contribute to potential downside for Micron.

Based on the MTF, the long-term MA is above short-term MA suggest that we might see Micron going into a downside potential after its earnings.

There have been some strength from the semiconductor space to help Micron, but I would think that Micron is still suffering from its previous challenges.

I will be watching how the margins would be showing with the challenges that Micron is facing, what would be important also is the outlook for Micron moving forward, since the smartphone chips market Micron is reliant on China, what Micron planned to navigate this challenge.

Appreciate if you could share your thoughts in the comment section whether you think Micron margins would be affected by the economic slowdown in China and also the smartphone chips demand.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.