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Micron (MU) Q3 Earnings Beat, Shares Fall on Dim Q4 Guidance

·7 min read

Micron Technology MU reported better-than-expected earnings for the third quarter of fiscal 2022. The company’s fiscal third-quarter non-GAAP earnings per share (EPS) of $2.59 beat the Zacks Consensus Estimate of $2.44. In addition, non-GAAP earnings registered year-over-year growth of 38%.

Quarterly revenues increased 16% year over year to $8.64 billion. However, the top line fell short of the Zacks Consensus Estimate of $8.66 billion.

Despite reporting strong bottom-line results, the memory chip maker’s shares fell 1.4% in the extended trading session as it provided the revenue and earnings forecast for the fourth quarter lower than the Zacks Consensus Estimate.

On its earnings call, the company stated that consumer spending has softened, resulting in the weakening of the memory chip demand from the smartphone and personal computer end markets.

However, Micron expects the demand for memory chips from the data center end market to remain strong, driven by increased investments by organizations in cloud adoption and digital transformation initiatives. Moreover, a solid uptick in dynamic random access memory bit shipments for the graphics, 5G, automotive and industrial markets is anticipated to continue acting as a key catalyst.

Let’s discuss third-quarter results in detail.

Micron Technology, Inc. Price, Consensus and EPS Surprise

Micron Technology, Inc. Price, Consensus and EPS Surprise
Micron Technology, Inc. Price, Consensus and EPS Surprise

Micron Technology, Inc. price-consensus-eps-surprise-chart | Micron Technology, Inc. Quote

Q3 Revenue Details

Dynamic random access memory revenues of $6.27 billion, accounting for 73% of the total revenues in the fiscal third quarter, jumped 15% year over year and 10% sequentially. Bit shipments increased by slightly more than 10% sequentially, while the average selling price (“ASP”) decreased marginally on a quarter-over-quarter basis.

NAND revenues of $2.29 billion, representing 26% of the total top line, were up 26% on a year-over-year basis and increased 17% quarter over quarter. While NAND ASP decreased slightly, bit shipments increased in the high-teen-percentage range sequentially.

Segment-wise, revenues of $3.9 billion from the computing and networking business unit climbed 18% from the year-ago quarter and 13% sequentially. MU noted that revenues were mainly driven by the strong performance across the data center, graphics and networking markets.

Revenues of $2 billion from the Mobile Business Unit declined 2% on a year-over-year basis but climbed 5% sequentially. Some weakness in the smartphone market hurt the segment’s year-over-year growth.

Embedded Business Unit’s revenues logged in $1.4 billion, up 30% from the year-ago period and 12% from the previous quarter. The year-over-year growth was primarily aided by strong execution and solid demand across the automotive and industrial markets.

Revenues from the Storage Business Unit, comprising solid-state drive (“SSD”) NAND components, totaled $1.3 billion, up 33% year over year and 15% sequentially. This year-over-year growth was mainly supported by the robust demand from data center customers and robust client SSD revenues.

Margins

Micron’s non-GAAP gross profit of $4.1 billion surged 29% year over year and 10% sequentially. The non-GAAP gross margin of 47.4% reflects a strong improvement from the year-ago quarter’s 42.9%. However, the gross margin contracted 40 basis points (bps) sequentially due to an increased mix of low-margin NAND products.

Micron’s non-GAAP operating income of $3.14 billion soared 33% year over year and 14% sequentially. The non-GAAP operating margin improved to 36.4% from the year-earlier quarter’s 31.9%, primarily due to the higher gross margin. The non-GAAP operating margin improved 110 bps sequentially due to lower operating expenses as a percentage of revenues, which more than offset the impact of the reduced gross margin on a quarter-over-quarter basis.

Non-GAAP operating expenses came in at $953 million compared with the previous quarter’s $974 million and the year-ago quarter’s $821 million. As a percentage of revenues, operating expenses for the fiscal third quarter came in at 11% compared with the previous quarter’s 12.5% and the year-ago quarter’s 11.1%.

Balance Sheet & Cash Flow

Micron exited the reported quarter with cash and investments of $11.98 billion compared with the $11.9 billion recorded at the end of the prior quarter. Furthermore, MU ended the quarter with total liquidity of $14.5 billion compared with the $14.4 billion witnessed at the end of the second quarter of fiscal 2022.

Micron’s long-term debt as of Jun 2, 2022 was $7 billion compared with the $6.9 billion witnessed at the end of the second quarter.

The company generated operating cash flow of $3.8 billion during the fiscal third quarter and free cash flow of $1.3 billion. It repurchased stocks worth $981 million and paid approximately $111 million in dividends.

In the first nine months of fiscal 2022, Micron generated operating and free cash flows of $11.4 billion and $3 billion, respectively. During the period, it repurchased stocks worth $1.65 billion and paid $335 million in dividends.

Guidance

Micron provided guidance for the fourth quarter of fiscal 2022. The company anticipates revenues of $7.2 billion (+/-$400 million) for the fiscal fourth quarter, significantly lower than the Zacks Consensus Estimate of $9.29 billion.

For the fiscal fourth quarter, MU projects a non-GAAP gross margin of 42.5% (+/-150 bps). Operating expenses on a non-GAAP basis are estimated at $1.05 billion (+/-$25 million).

The adjusted EPS is anticipated at $1.63 (+/-20 cents). The consensus mark is pegged at $2.71 per share.

Zacks Rank & Stocks to Consider

Currently, Micron carries a Zacks Rank #5 (Strong Sell). Shares of MU have plunged 40.6% year to date (“YTD”).

Some better-ranked stocks worth considering from the broader technology sector are Monolithic Power Systems MPWR, Synopsys SNPS and PTC Inc. PTC, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Monolithic's second-quarter 2022 earnings has been revised upward by 57 cents to $2.94 per share over the past 60 days. For 2022, the Zacks Consensus Estimate for Monolithic's earnings has moved north by $1.98 to $11.61 per share in the past 60 days.

Monolithic's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 8%. Shares of MPWR have plunged 22.2% YTD.

The Zacks Consensus Estimate for Synopsys' third-quarter fiscal 2022 earnings has been revised upward by 25.3% to $1.93 per share over the past 60 days. For fiscal 2022, earnings estimates have moved north by 7.2% to $8.47 per share in the past 60 days.

Synopsys' earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 2.7%. Shares of SNPS have decreased 17.6% YTD.

The Zacks Consensus Estimate for PTC's fourth-quarter fiscal 2022 earnings has been revised upward by a penny to $1.18 per share in the past 60 days. For fiscal 2022, earnings estimates have moved north by 13 cents to $4.55 per share in the past 60 days.

PTC's earnings beat the Zacks Consensus Estimate thrice in the preceding four quarters while missing the same on one occasion, the average surprise being 29.4%. Shares of PTC have plunged 12.3% YTD.


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