Micron's Q4 Earnings In Line, Revenues Beat, Shares Up

Share of Micron Technology Inc. (MU) went up 3.85% in after-trade on Thursday after the company reported modest fourth-quarter fiscal 2014 results and provided encouraging first-quarter revenue guidance.

Adjusted earnings (excluding the impact of the Micron Memory Japan, Inc. acquisition and other one-time items) came in at 82 cents, which matched the Zacks Consensus Estimate.

Micron Technology, Inc - Quarterly Earnings Per Share | FindTheBest

Quarter Details

Micron’s revenues in the quarter increased 48.7% on a year-over-year basis to $4.23 billion and surpassed the Zacks Consensus Estimate of $4.17 billion. The substantial increase in revenues could be mostly attributed to improving market conditions as well as an encouraging operating performance.

Moreover, DRAM product revenues increased approximately 5% on a sequential basis, primarily due to higher bit sales volume and constant ASPs (average selling price).

NAND Flash products revenues grew 6% on a sequential basis, primarily due to an increase in bit sales volume (up 13%), which was partially offset by a 6% decline in ASPs.

Coming to the Storage Business Unit (:SBU), revenues came in at $907 million during the quarter, up 4% on a sequential basis. Both client and enterprise SSDs revenues increased during the quarter. It is worth mentioning that Micron witnessed stable pricing in NAND chips.

The computing and networking business saw strong demand with revenues of $1.9 billion during the quarter, primarily due to a favorable pricing environment. Networking DRAM pricing improved 19% sequentially aided by 4G LTE deployment in China and emerging markets.

During the quarter, Micron unveiled its new SATA SSD, M600, to meet the growing demand for personal storage and also cater to the media and entertainment market.

Buoyed by a solid top-line performance and a favorable product mix, Micron’s gross profit increased from $708.0 million in the year-ago quarter to $1.39 billion. Gross margin came in at 32.8% versus 24.9% a year ago, primarily boosted by higher revenues.

Selling, general and administrative (SG&A) expenses decreased 6.7% year over year to $180 million. Research and development (R&D) expenses came in at $358 million, 34.1% higher than the year-ago quarter.

Micron reported operating income of $828 million, which significantly improved from $207 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 444 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 $961 million or 82 cents during the quarter.

On a GAAP basis, net income came in at $1.15 billion compared with $1.71 billion reported in the year-ago quarter.

The company exited the fourth quarter with cash and short-term investments of $4.53 billion compared with $4.26 billion in the previous quarter. Receivables were $2.91 billion compared with $2.71 billion in the previous quarter. Micron’s long-term debt increased to $4.96 billion from $4.14 billion in the previous quarter.

Cash generated from operations was $1.35 billion compared with $1.46 billion in the previous quarter. Capital expenditure was $1.33 billion compared with $576.0 million in the previous quarter.

Guidance

For the first quarter of fiscal 2015, Micron expects revenues in the range of $4.45 billion to $4.7 billion (mid-point $4.58). The Zacks Consensus Estimate is pegged at $4.48 billion.

Micron expects DRAM ASPs to be up to low single digit for the forthcoming quarter. Projected bit cost is expected to be down in low single-digit, whereas bit growth is expected to be up in mid to high-single digits, all sequentially. The main factors impacting the DRAM guidance for the upcoming quarter are positive DRAM market conditions and growing DRAM mobile volumes.

NAND ASP is expected to be down in low to mid-single-digit sequentially. Bit costs are expected to be down to low-single digit, whereas prediction bit growth is expected to be up in high double digit. The main factors impacting the NAND guidance for the upcoming quarter are stable NAND market conditions, and better-than-expected growth in client and enterprise SSD market.

Management expects SG&A expenses to be in the range of $195 million to $205 million in the first quarter of fiscal 2015. R&D expenses are expected to be in the range of $395 million to $405 million.

Our Take

Micron reported modest fourth-quarter fiscal 2014 results. While the top surpassed the Zacks Consensus Estimate the bottom line matched the same. Year-over-year revenues also compared favorably. The results were primarily boosted by improving market conditions 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. Moreover, Micron provided an encouraging revenue guidance for the forthcoming quarter.

Moreover, 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 2014, 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.

Currently, Micron has a Zacks Rank #1 (Strong Buy).

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