Micron gains on forecast of strong quarter in memory chip market

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(Bloomberg) -- Micron Technology Inc. jumped the most in six months after reporting earnings that beat estimates and predicting another strong quarter.

The memory and storage chips that Micron makes for computers and mobile devices remain in short supply as the industry reaps the benefits of curbing spending on new plants and production. Prices are also being bolstered as everything from cars to data centers add more computing capabilities, broadening the market for the electronic components.

Profit, except certain items, will be $2.09 a share to $2.23 a share in the fiscal first quarter, the Boise, Idaho-based company said Tuesday in a statement. That compares with the average analyst estimate of $1.84. Revenue will be $6.1 billion to $6.5 billion in the current period, Micron said. On average, analysts had estimated sales of $6.1 billion.

Micron’s stock has surged as investors grow more confident it will deliver sustained profits. The stock is up almost 70 percent this year compared with a 26 percent gain by the benchmark Philadelphia Stock Exchange Semiconductor Index. The shares jumped as much as 8.2 percent to $36.97 Wednesday, the biggest intraday gain since March 24.

After losing money as recently as last year -- highlighting the tough nature of making a living in this part of the semiconductor industry -- Micron reported record sales and profit for its fiscal year 2017 and is projected to be on course to repeat that. That’s going to be helped by continuing restraint on spending for new supply, Chief Executive Officer Sanjay Mehrotra said in an interview. Micron won’t build a new factory next year, he said.

“The industry has shown tremendous discipline and focus on profitable growth,” he said. New markets such as autonomous driving systems will continue to fuel demand for more advanced chips, he said.

Still, the company plans to spend about $7.5 billion in the current fiscal year, an increase from last year and more than projections of about $6 billion from analysts including Karl Ackerman at Cowen & Co.

The company is a survivor. After decades of swings between profit and loss when rivals gave up or went bankrupt, Micron has made itself one of the biggest companies in an industry where production is now concentrated in the hands of just five companies. While, like the rest of the industry, it’s still dwarfed by Samsung Electronics Co., demand isn’t as concentrated in the personal computer and phone market as it was, making it easier to carve out profitable niches. Even Samsung has held off on flooding the market with new production.

Micron competes against Samsung and SK Hynix Inc. in computer memory and against those Korean companies plus Japan’s Toshiba Corp. in the market for flash memory chips that store data in mobile devices.

The Japanese company’s chip unit is the center of a drawn out attempt to find a buyer. After a contentious bidding process that has stretched over eight months, Toshiba is aiming to reach a final agreement with Bain Capital, Apple Inc. and other potential buyers including SK Hynix, by the end of September.

Micron’s fiscal fourth-quarter profit was $2.37 billion, or $1.99 a share, compared with a loss a year earlier. Revenue increased 90 percent to $6.14 billion from the quarter a year earlier. Analysts had predicted a profit of $1.84 a share on sales of $5.97 billion.

Bloomberg News