Despite Horrific Guidance And Recession Warnings, Micron Rises Thanks To Aggressive Capex Cuts

Three months after Micron plunged following poor Q3 earnings and a dismal forecast, the company has done it again, and after the close the memory chipmaker reported revenue that missed (despite a small beat on EPS and margins), but it was the forecast that again was a total disaster.

First, a look at the just concluded fourth fiscal quarter:

• Adjusted revenue $6.64 billion, -20% y/y, missing the estimate of $6.8 billion
• Adjusted EPS $1.45 vs. $2.42 y/y, beating the estimate of $1.37
• Adjusted gross margin 40.3% vs. 47.9% y/y, beating the estimate 39.7%
• Cash flow from operations $3.78 billion, -2.8% y/y, beating the estimate $3.67 billion

But while the historical numbers may have been passable, the guidance was an absolute disaster, disappointing on the top line, the bottom line and margin.  The company now sees (press release):

• Adjusted revenue $4 billion to $4.5 billion, far below the estimate $6.02 billion
• Adjusted loss per share 6c to EPS 14c, far below the estimate EPS 87c
• Adjusted gross margin 24% to 28%, far below the estimate 33.6%

It gets worse: echoing some of the biggest corporate recession warnings so far, Micron said “results were impacted by rapidly weakening consumer demand and significant customer inventory adjustments across all end markets.” It added that due to the sharp decline in near-term demand, it expects “supply growth to be above demand growth in calendar 2022.”

Which, of course, is the reverse bullwhip effect – which we discussed back in May – in its full glory.

Which brings us to the punchline: in response to the sharp economic slowdown and the weak environment, Micron is decreasing supply growth through significant cuts to FY23 CapEx.

Specifically, the company said that “we are taking decisive steps to reduce our supply growth including a nearly 50% wafer fab equipment capex cut versus last year, and we expect to emerge from this downcycle well positioned to capitalize on the long-term demand for memory and storage.”

Additionally, Micron said that it:

• Remains on track to start the ramp of 1-beta DRAM node in manufacturing by the end of calendar 2022.
• Expects FY23 CapEx to be around USD 8Bnn.
• Expects strong rev growth in H2 FY23 as bit demand rebounds, following substantial improvement in customer inventories.

So even though it is going from bad to worse for the economy, and the company is slashing guidance as if it is headed into a recession, if not depression, the stock managed a solid rebound after markets learned about the company’s aggressive cost-cutting strategy as Micron hunkers down and hopes to hibernate the coming economic winter with as little damage as possible.