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Micron Technology Inc. says it can weather the storm of a sharp downturn in demand for its products.

The company, which makes memory chips for data centers, reported lower-than expected guidance for its upcoming third quarter, but insisted that it will return to growth by the end of the year. That prediction came as Micron delivered strong fiscal 2019 second-quarter results that beat expectations on profit and revenue.

The company reported a profit before certain costs such as stock compensation of $1.71 per share on revenue of $5.84 billion, down from $7.35 billion in revenue it posted in the same period a year ago. Wall Street analysts were looking for just $1.60 per share on revenue of $5.81 billion.

Analyst Holger Mueller of Constellation Research Inc. said Micron was “riding the roller coaster” of the storage market and that it had done well despite the circumstances.

“The vendor has done well at managing cost, and very well in not slipping into the red ink,” Mueller said. “Few companies can digest a 20 percent drop in revenue so well.”

Investors were more interested in Micron’s future prospects, however, and were probably disappointed that the company came up short with its third-quarter guidance. Micron Chief Financial Officer David Zinsner said in a conference call that he expects a profit for the next three-month period of about 85 cents per share on revenue of $4.6 billion to $5 billion. That’s substantially less than the $1.18 a share on $5.29 billion in revenue forecast by Wall Street, Bloomberg reported.

Normally, investors would be up in arms on hearing such dismal guidance, but that didn’t happen today as Micron executives explained the steps they’re taking to deal with reduced demand for its products.

Micron is currently seeing a big slump in demand due to its customers stockpiling inventory, Chief Executive Officer Sanjay Mehrotra (pictured) said on the call. Its bottom line has also been hurt by a steep decline in the price of its storage products, he said. To address that, Mehrotra said the company would cut production in order to lessen the impact on its revenues.

The company is planning to idle 5 percent of Dynamic Random-Access Memory and NAND “wafer starts” while it waits for data center markets to resume growth in the second half of the year. DRAM is commonly used to provide memory in PCs and computer servers, while NAND flash memory is also used in servers and in smaller devices such as USB drives.

“In response to near-term industry conditions, we are taking decisive action to reduce our supply growth to be consistent with industry demand,” Mehrotra said on the call.

Charles King of Pund-IT Inc. said Micron’s main problem right now is that the memory chip space is in the midst of a cycle where oversupply is causing suppliers to reduce prices in order to get excess product off the shelves. The company hasn’t been helped by the failure of new technologies such as its 3D X-Point memory to gain enough momentum to supplant its traditional products.

“It’s a situation that provides a good reminder that industry-standard computing components tend to act like most other commodities,” King said. “Fortunately for Micron shareholders, the company has been through this cycle before and appears to be taking the proper steps to survive the current doldrums.”

And there could already be some light at the end of the tunnel, as Mehrotra said the company has already seen evidence of its customers working through their stockpiles of unused components, and that these inventory reductions should be completed by the middle of the year.

That seemed to be enough to reassure investors, as Micron’s stock surprisingly jumped almost 5 percent in after-hours trading. Update: Shares jumped 9.6 percent Thursday.

But those backing Micron may be taking a bit of a gamble, as one analyst said he was less than confident about the company’s prospects.

“Micron is in a tough pricing market and regardless of what the company says, it has fixed fab assets that are likely winding down yet paying fixed expenses,” said Patrick Moorhead, president and principal analyst at Moor Insights & Strategy. “I’m not as bullish on Micron right now.”

Photo: SiliconANGLE