Shares of the US chipmaker Micron Technology (NASDAQ:MU) took a tumble in Friday's pre-market trading on news that its profits are likely to take a hit as the US slaps tariffs on Chinese goods.
"Our gross margins will also be impacted in the near term by the announced 10% tariff on US$200bn of imports from China which will go into effect on September 24," Micron's CFO David Zinsner said on a conference call to discuss fiscal fourth-quarter earnings. "We are working to gradually mitigate most of the impact from these tariffs over the next three to four quarters."
The move by the Trump administration to introduce a 10% tariff on US$200bn worth of goods imported from China represents a crushing blow to Micron, which generates a large chunk of its revenue from China.
Read: Micron Technology will not see any rebound in its gross margin until 2020, says Baird analyst
In Friday's pre-market session, investors sent Micron shares down nearly 6% to US$43.44 after sending them higher immediately after the release of Micron's earnings Thursday.
On the earnings conference call, Zinsner also disappointed investors by projecting that Micron would see fiscal first-quarter earnings of $2.88 to $3.02 per share on revenue of $7.9 billion to $8.3 billion. Wall Street had projected Micron would earn $3.08 per share on revenue of $8.45 billion.
Micron's fiscal 4Q results zip past Street's estimate on revenue and profit
For the fiscal fourth-quarter, however, Micron's results were strong as the chipmaker beat consensus estimates for both revenue and profit.
In the three months ended August 30, Micron reported earnings of US$4.33bn or US$3.56 per share, on revenue of US$8.44bn. The results trounced the expectations of analysts who had forecast that Micron would earn US$3.34 per share on revenue of US$8.25bn.
The results also compared well with the fourth quarter of last year, when Micron reported earnings of US$1.99 per share or US$2.37bn.
“Micron delivered an exceptional fourth quarter and capped record fiscal year results by becoming the second largest semiconductor company in the US,” said Sanjay Mehrotra, Micron’s president and CEO. “In the fourth quarter, we set revenue records across all our major markets, from automotive and industrial to mobile and cloud data centers,” Mehrotra added.
Read: Goldman Sachs cools toward Micron, downgrades stock to Neutral from Buy
Revenue for the fourth quarter climbed 8% from the prior quarter when it stood at US$7.97bn and it was also up nearly 38% from the year-ago quarter when it amounted to US$6.14bn. Micron’s gross margin, meanwhile, came in at 61% for the fourth quarter compared to 60.6% in the prior period.
The company spent money in the quarter as its net investments in capital expenditures came to US$2.06bn in its fourth quarter and US$8.2bn for the full year of 2018. Micron also reduced its debt burden to US$4.64bn by either repurchasing or converting US$2.23bn in the principal amount of its debt during the quarter and US$6.96bn for the full year.
Analysts at Goldman Sachs this month cooled towards US chipmaker Micron Technology Inc (NASDAQ:MU), downgrading the stock to Neutral from Buy on weaker fundamentals based on anticipated price cuts on waning demand for DRAM and NAND flash memory chips.
Baird analyst Tristan Gerra also recently slashed his price target on the chipmaker to US$75 from US$100 and reduced his full-year earnings estimate for the shares as gross margin near a peak.
Micron is the fourth-largest US-based chipmaker behind Qualcomm Inc (NASDAQ:QCOM), BroadcomInc (NASDAQ:AVGO) and Intel Corp (NASDAQ:INTC). Unlike its larger peers, however, the Boise, Idaho-based company has doubled down on the market for memory chips.
Micron offers chips that include DRAM, NAND flash and NOR flash. They are used to store information, in comparison to microprocessor chips made by companies like Intel, which provide computing power.