Micron Earnings: Clouds Lifting? Text Analytics Points to Yes

Micron reported its FY2Q earnings last night, and while the headline revenues and earnings appeared weak, for a cyclical company like Micron the second derivative is often more important.

Please note: This in no way represents investment advice. All transcript text provided by S&P Global Market Intelligence.

Clouds Lifting at Micron?

High Level View: Signs of putting in a bottom

The Amenity Score of the earnings call was 7, essentially flat vs last quarter. Digging deeper into the details, we see generally positive trends among the Key Drivers in the Amenity text analytics platform; more constructive forward looking commentary, easing macro headwinds, and bullish market positioning:

Micron Company View: Key Drivers Trending Positively

Key Swing Factor: Cloud customers close to coming back?

Micron is one of many technology providers impacted by a pause in spending from the large cloud service providers. A look at earnings sentiment across this group shows that Juniper was the first to see a slowdown in October. Meanwhile, Micron could be the first to see light at the end of the tunnel as its customers work down excess inventory.

The data points below track cloud spending chronologically, back to Juniper's down tick in October:

  • Micron (3/20/19):

"The slowdown in demand is a result of ongoing customer inventory adjustments as well as software optimizations at some cloud customers. We expect growth to resume in the second half of calendar 2019 as we see improvement in customers’ inventory position."

"When you look at the results that some of the cloud service providers have reported,those results continued to be solid, pointing to the demand and the growth in cloud services."

  • Marvell (3/7/19):

"We believe that demand for storage Controller products was impacted primarily by macro uncertainty, a reduction in cloud capital spending and PC CPU shortages."

  • NVIDIA (2/14/19):

"Hyperscale and cloud purchases declined both sequentially and year-on-year as several customers paused at the end of the year."

  • Seagate (2/4/19):

"The multi-quarter digestion phase that we are experiencing with cloud service provider customers is temporarily affecting the exabyte demand in the overall nearline market."

  • Juniper (1/29/19):

"We continue to experience weakness within the cloud and Service Provider verticals. Our cloud business has remained challenged over the last few quarters as several of our hyper scale customers have continued to run their networks harder."

  • Intel (1/24/19):

"If you look back at all the historical trends we’ve had in the cloud business, we’ve always said there’s some lumpiness to the business. And there’s periods where people build, and then there’s periods where people consume. The signals we get from our customers is a period of build for compute is going to shift now to a period of consumption. And that started in the second half, in the fourth quarter, and we expect that to continue through the first half of the year."

  • Micron (12/18/18):

"We are seeing some cloud customers go through a digestion period following very strong growth over the last 2 years."

  • Seagate (11/2/18):

"We also see, however, intermittent periods of digestion where strong buying patterns from large-scale customers will dampen in order to build through existing inventory before proceeding. One of these digestion cycles began in earnest in late FY1Q. And our best estimate is that it may last for up to 3 quarters."

  • Juniper (10/23/18):

"While we remain optimistic regarding our long-term prospects, we are also seeing some challenges in the market, particularly within the cloud vertical, where we believe several of our customers are running their networks harder and the pace of deployments are proceeding more slowly than we previously anticipated."

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Transcript text provided by S&P Global Market Intelligence.

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