Perhaps the strong rally in big cap tech stocks over the past month isn’t overdone. That is if one is to look through the prism of demand for semiconductors in China, where the coronavirus started and has now begun to open back up for business after extended quarantines across the country.
“We are starting to see some demand coming back [in China]. Certainly it was a big reduction in our last quarter because supply of smartphones weren’t available because so many of the smartphone factories were shut down in the first quarter. We’ve seen those start to come back up and we’ve seen some consumer spending,” said Micron Technology executive vice president of global operations Manish Bhatia on Yahoo Finance’s The First Trade.
Micron is one of the word’s largest producers of DRAM and NAND flash memory chips. Its chips are instrumental building blocks in smartphones and cloud computing technologies.
Added Bhatia, “Certainly the bigger trend we’re seeing in China — and globally — is cloud and data-center continues to be strong. That happened in China when they first started experiencing quarantines that were put in place and then expanded globally. So that’s really the strongest part of our business is data-center and cloud computing right now — all those things that enable us to work from home and continue with our lives, and what governments and scientists are using.”
Strong demand for cloud computing was certainly evident in first quarter earnings results from Microsoft and Amazon, underscoring Bhatia’s insights. Meanwhile, Apple CEO Tim Cook noted on an earnings call last week demand in China continued to recover through April.
Micron appears to be betting that the recovery in China continues on a steady track in the months ahead and broadens out to other countries as they reopen.
The company forecast third fiscal quarter sales of $4.6 billion to $5.2 billion, compared to $4.8 billion in the second fiscal quarter. Non-GAAP earnings in the third quarter are seen at about 55 cents a share (plus or minus 15 cents) versus 36 cents a share in the second quarter.
The market may not yet be totally sold on a sustained recovery, however.
Micron shares are up 6% in the past month compared to a 17% gain for the Nasdaq Composite.
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