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Memory Chip Demand Surge to Aid Micron’s (MU) Q4 Earnings

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Micron Technology MU is slated to report fourth-quarter fiscal 2021 results on Sep 28.

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The company’s fiscal fourth-quarter performance is likely to have benefited from the strong memory-chip demand from data-center operators, PC manufacturers and smartphone makers.

Surging Memory Chip Demand

The work-and-learn-from-home necessity amid the coronavirus crisis is stoking demand for cloud storage. Furthermore, the social-distancing trend has boosted the usage of online services globally. Therefore, the data-center operators are enhancing their cloud-storage capacities in a bid to accommodate the skyrocketing demand for cloud services, which is fueling demand for memory chips.

The COVID-19 pandemic-induced lockdown and social-distancing measures are spurring demand for PCs and notebooks as more and more workers and students are now working and learning from their homes. This trend is likely to have continued in the fiscal fourth quarter as well, thereby aiding Micron’s top-line performance.

Per IDC data, the second-quarter 2021 (April-June) PC shipments increased 13.2% to 83.6 million units. Lenovo was the top vendor, followed by HP Inc. HPQ, Dell Technologies DELL and Apple AAPL, per IDC. Further, the market research firm forecasts 18.2% year-over-year PC shipment growth in 2021.

Moreover, solid recoveries in sales across the smartphone and automotive industries are likely to have supported Micron’s overall financial performance during the quarter under review. According to the latest forecast by Gartner, the worldwide sales of smartphones will likely be up 11.4% year over year to 1.5 billion units in 2021. This suggests a sharp improvement from the 10.5% decline registered in 2020.

Nonetheless, Micron’s heavy dependence on China is a headwind due to the ongoing tit-for-tat trade spat between the United States and China. Restrictions on exports to Huawei might have hurt top-line growth of this Zacks Rank #4 (Sell) company.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Furthermore, higher prequalification and labor expenses are likely to have negatively impacted Micron’s fourth-quarter bottom-line performance. During the fiscal second-quarter conference call, the company noted that it expects a rise in operating expenses during the second half of fiscal 2021 due to the higher prequalification and labor expenses.

Moreover, operating expenses are expected to have flared up during the fiscal fourth quarter due to the resumption of the previously-delayed fiscal 2021 salary hikes in the fiscal third quarter. This might have hurt the company’s margins and profitability during the quarter to be reported.

Additionally, a higher mix of lower-margin NAND, coupled with low memory prices and minimal decline in manufacturing costs, is expected to have strained margins.

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