MarketWatch First Take: Micron CEO remains optimistic even as coronavirus ushers in ‘unprecedented times’

Micron Technology Inc. Chief Executive Sanjay Mehrotra sounded remarkably optimistic Wednesday about the prospects for his company and for the tech industry in general, despite the gloom and doom that is pervading most industries right now as the world battles the COVID-19 pandemic.

The memory-chip company reported fiscal second-quarter results that were slightly better than expected, and said that its revenue would have come in on the higher end of its previous guidance if not for the impact of the quickly spreading coronavirus. In addition, Micron has been spending money on mitigation measures such as sanitizing facilities, creating safer manufacturing practices and purchasing 5,000 notebook computers so employees can work at home.

“These are unprecedented times, and I’m calling from home today,” Mehrotra told analysts in a conference call. The company also gave a wide-ranging guidance for the fiscal third quarter, citing strong underlying demand in certain product sectors, such as servers for cloud computing and computers to allow working from home. However, other consumer electronics, such as smartphones and automobiles, were hurting in China, a trend that is likely to be mirrored as the coronavirus hits different economies around the world. All of these products use either DRAM or NAND flash memory, Micron’s core memory-chip products.

“In China, lower consumer demand was offset by stronger data-center demand due to increased gaming, e-commerce and remote work activity,” Mehrotra said. “Looking to the third quarter, as these trends also take shape worldwide, data-center demand in all regions look strong and is leading to supply shortages.” He added that there has been a recent increase in worldwide demand for notebooks used in the corporate and education markets for working from home and virtual learning.

Micron said it has two employees, out of 37,000 in 18 countries around the globe, who have tested positive for COVID-19, and who are receiving medical care. Micron took precautions to protect its workforce very early on, since the pandemic first broke out in China. The company started health screenings at all Micron locations around the world, and it was among the first in the chip industry to implement physical separation protocols at manufacturing sites to mitigate the risk of community spread, with blue teams and red teams that operate on alternating schedules.

“We have been requiring self-declaration and self-quarantine measures as this crisis has spread, whereby teammates, contractors and their immediate families observe 14 days of work from home after any air or sea travel,” he said. The company has suspended all local and global travel and employees work from home whenever possible.

Micron executives also said that the company’s inventories have risen in the quarter, as it has begun to stockpile more raw materials needed in the manufacture of semiconductors, and to minimize the impact of logistics delays. Micron’s manufacturing operations in Malaysia, for example, were briefly thrown into turmoil after that country closed its borders on March 16, before it later added semiconductors to a list of essential businesses, so the company’s assembly and test operations were able to resume on a limited basis.

“It’s a very fluid situation,” Mehrotra said.

The company’s wide-ranging outlook for revenue and earnings in the fiscal third quarter, though, highlights the caution that executives are taking and the possibility of the fluctuations in demand, manufacturing and logistical interruptions, and the potential for labor or material shortages.

“While the near-term business environment is uncertain, we believe that long-term demand trends for Micron remain robust,” Chief Financial Officer David Zinsner said.

Investors were heartened by the company’s optimism and its view of the current demand situation, driving Micron’s shares up nearly 6% at one point in after-hours trading. While Micron’s CEO has been known in the recent past to be slightly overly optimistic, the underlying demand trends are positive for the company and for many segments of the tech industry. Investors just need to remember that there are a lot of caveats, and that things can change quickly in a global pandemic.

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