Micron Beats on Q2 Earnings & Rev
Micron Technology Inc. (MU) reported second quarter fiscal 2014 earnings of 85 cents, comprehensively beating the Zacks Consensus Estimate of 61 cents per share. The company swung to profit from the year-ago loss of 28 cents. The year-over-year improvement was primarily due to the Elpida acquisition, higher revenues and solid execution in the DRAM business.
Quarter Details
Micron’s revenues in the quarter increased 97.6% on a year-over-year basis to $4.11 billion and surpassed the Zacks Consensus Estimate of $3.99 billion. The substantial increase in revenues could be mostly attributed to higher revenues from DRAM products, positive market conditions as well as encouraging operating performance.
However, DRAM products revenues were flat on a sequential basis, primarily due to stable pricing in both sales volumes and ASPs (average selling price).
NAND Flash products revenues increased 11.0% sequentially due to a 35% rise in sales volumes, offset by an 18% decrease in ASPs.
During the quarter, Micron unveiled its new solid state drive (SSD), M550, to meet the growing demand for personal storage and also cater to the media and entertainment market.
Buoyed by a solid top-line performance, strong margins of Elpida operations and a favorable product mix, Micron’s gross profit increased from $366.0 million in the year-ago quarter to $1.40 billion. Gross margin came in at 34.2% versus 17.6% a year ago, primarily boosted by higher revenues.
Selling, general and administrative (SG&A) expenses increased 43.9% year over year to $177.0 million. Research and development (R&D) expenses came in at $344.0 million, 60.8% higher than the year-ago quarter.
Micron reported operating income of $869.0 million, which significantly improved from a loss of $23 million reported in the year-ago quarter, primarily due to lower operating expenses as a percentage of revenues. Operating expenses, as a percentage of revenues, decreased 572 bps on a year-over-year basis.
Micron recorded non-GAAP net income (excluding the impact of the Elpida acquisition and other one-time items) of $989.0 million or 85 cents compared to a net loss of $286.0 million or 28 cents in the year-ago quarter.
The company ended the second quarter with cash and short-term investments of $4.50 billion, up from $3.87 billion in the previous quarter. Receivables were $2.83 billion, which remained flat on a sequential basis. Micron’s long-term debt increased to $4.32 billion from $4.26 billion in the previous quarter.
Cash generated from operations was $1.39 billion, up from $1.15 billion in the previous quarter. Capital expenditure was $565.0 million compared with $699.0 million in the previous quarter.
Guidance
For the third quarter of fiscal 2014, Micron expects DRAM ASPs, projected bit cost as well as production volume to be down in low single-digit. NAND ASP is also expected to be down in low single-digit sequentially. Bit costs are expected to be flat, whereas prediction volume is expected to be down in high single-digit.
Revenues from NOR products is expected to be in the range $100 million to $110 million in the third quarter of fiscal 2014.
Management expects SG&A expenses to be in the range of $170 million to $180.0 million in the third quarter of fiscal 2014. R&D is expected to be in the range of $345 million to $355.0 million.
Our Take
We are encouraged by Micron’s strong second-quarter fiscal 2014 results as both the top and bottom line increased year over year and surpassed the Zacks Consensus Estimate. The results were primarily boosted by higher revenues from DRAM products, solid operational execution and the Elpida acquisition. Going forward, the acquisition of Rexchip and Elpida will benefit Micron’s share in the memory market. Moreover, Micron is positive about its product launches and growing demand for its products, particularly SSD products.
Additionally, the Elpida acquisition also brought Apple Inc. (AAPL) on to the customer roster, which is a positive for future growth. The company is also optimistic about supply/demand balance for DRAM and NAND memory chips in 2014, which should support prices.
However, it may not be easy for Micron to capture share from SanDisk Corp (SNDK) a key player in the NAND zone. Nevertheless, with support from Apple and Intel Corp. (INTC), its prime NAND customers, the situation could be in Micron’s favor going forward.
Currently, Micron has a Zacks Rank #3 (Hold).
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