Micron Technology (MU) Beats on Q2 Earnings & Revenues - Analyst Blog

Micron Technology Inc. MU reported second-quarter of fiscal 2015 adjusted earnings (excluding the impact of the Micron Memory Japan, Inc. acquisition and other one-time items) of  81 cents, which surpassed the Zacks Consensus Estimate of 77 cents. However, adjusted earnings decreased from 85 cents reported in the year-ago quarter.
 

Micron Technology Inc. - Earnings Surprise | FindTheCompany

Quarter Details

Micron’s revenues in the quarter not only increased 1.4% on a year over year basis to $4.17 billion but also beat the Zacks Consensus Estimate of $4.16 billion. The substantial year-year-over increase in revenues could be mostly attributed to improving market conditions, diversified product portfolio as well as an encouraging operating performance. Also, better-than-expected demand in NAND contributed to the overall revenue growth.

NAND Flash products revenues grew 3% on a sequential basis, primarily due to an increase in bit sales volume (up 12%), which was partially offset by a 9% decline in ASPs (average selling price).

However, DRAM product revenues decreased approximately 13% on a sequential basis, primarily due to lower bit sales volume (down 9%) and ASPs (down 6%).

Coming to the Storage Business Unit (SBU), revenues came in at $954 million during the quarter, down marginally on a sequential basis.

Revenues from the Mobile Business Unit (MBU) came in at $856 million during the quarter, primarily aided by better-than-expected demand in mobile.

The computing and networking business saw weak demand with revenues of $1.8 billion during the quarter, primarily due to an unfavorable pricing environment and lower-than-expected demand for PC notebooks. Networking DRAM pricing remained stable primarily due to LTE deployment in China and emerging markets.

Revenues from embedded business came in at $502 million, up slightly on a sequential basis. The increase can be attributed to growth in the automotive segment.

It is worth mentioning that Micron recently unveiled 3D NAND technology to meet the growing demand for personal storage and also to cater to the media and entertainment market. We believe that key technology inflections in areas like 3D NAND will boost growth and profitability of the company, going forward.

Micron’s gross profit was approximately flat on a year over year basis and came in at $1.40 billion. Gross margin came in at 33.7% versus 34.2% a year ago, primarily due to lower ASPs for NAND and DRAM and higher cost of sales.

Selling, general and administrative (SG&A) expenses increased 5.7% year over year to $187 million. Research and development (R&D) expenses came in at $379 million, 10.2% higher than the year-ago quarter.

Micron reported operating income of $855 million, which decreased from $869 million reported in the year-ago quarter, primarily due to higher operating expenses. Operating expenses, as a percentage of revenues, increased 20 basis points on a year-over-year basis.
 
Micron recorded non-GAAP net income (excluding the impact of the Micron Memory Japan, Inc. acquisition and other one-time items) of $941 million or 81 cents during the quarter compared with $989 million or 85 cents reported in the year-ago quarter.

On a GAAP basis, net income came in at $934 million compared with $731 million reported in the year-ago quarter.

The company exited the second quarter with cash and short-term investments of $4.48 billion compared with $4.23 billion in the previous quarter. Receivables were $2.76 billion compared with $2.66 billion in the previous quarter.  Micron’s long-term debt increased to $5.52 billion from $4.61 billion in the previous quarter.

Cash generated from operations was $1.25 billion compared with $1.59 billion in the previous quarter. Free cash flow came in at $400 million. Capital expenditure was $853 million compared with $669 million in the previous quarter.

During the quarter, the company repurchased approximately $200 million shares on the prevailing $1 billion stock repurchase program.

Guidance

For the third quarter of fiscal 2015, Micron expects revenues in the range of $3.8 billion to $4.1 billion. The Zacks Consensus Estimate is pegged higher at $4.27 billion.

Micron expects DRAM ASPs to be down in high single digits in the forthcoming quarter. Projected bit cost is expected to be down in low single digits, whereas bit growth is expected to be up in high-single digits, all sequentially. The main factors impacting the DRAM guidance for the upcoming quarter are weak PC DRAM sales and unfavorable pricing environment.

NAND ASP is expected to be up in mid-single digits sequentially. Bit costs are expected to be up in mid-single digits, whereas prediction bit growth is expected to be down in low single digits. The main factors impacting the NAND guidance for the upcoming quarter are stable NAND and client SSD market conditions and favorable mix in mobile segment and managed NAND products.

Management expects SG&A expenses to be in the range of $180 million to $190 million in the third quarter of fiscal 2015. R&D expenses are expected to be in the range of $385 million to $395 million.

Our Take

Micron reported better-than-expected second-quarter fiscal 2015 results. Also, year-over-year revenues compared favorably. The results were primarily boosted by improving market conditions, diversified product portfolio as well as an encouraging operating performance.
Going forward, the acquisitions of Elpida and Rexchip (now known as Micron Memory Japan, Inc. and Micron Memory Taiwan Co., Ltd., respectively) will benefit Micron’s share in the memory market. Nonetheless, Micron provided a tepid revenue guidance for the forthcoming quarter.

Micron is positive about its product launches and growing demand for its products, particularly SSD products. The company is also optimistic about supply/demand balance for DRAM and NAND memory chips in 2015, which should support prices.

Micron has been constantly innovating in memory technologies, spanning DRAM, NAND and NOR Flash memory solutions, which are being widely used in the latest mobile computing devices as well as in consumer, networking and embedded products.

Additionally, we believe that the acquisition of Elpida will help Micron’s share in the memory market. The acquisition also brought Apple Inc. AAPL on to the customer roster, which is a positive for future growth.

However, it may not be easy for Micron to capture share from SanDisk Corp SNDK a key player in the NAND space. Nevertheless, with support from Apple and Intel Corp. INTC, its prime NAND customers, the situation could be in Micron’s favor going forward.

Micron has a Zacks Rank #3 (Hold).
 

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