Shares of Micron Technology Inc. (MU) went down 4.6% in after-hours trade on Tuesday after the company reported lower-than-expected first-quarter of fiscal 2015 revenues and provided a tepid second-quarter revenue guidance.
Adjusted earnings (excluding the impact of the Micron Memory Japan, Inc. acquisition and other one-time items) came in at 97 cents, which surpassed the Zacks Consensus Estimate of 92 cents. Adjusted earnings also increased from 77 cents reported in the year-ago quarter.
Quarter Details
Although Micron’s revenues in the quarter increased 13.1% on a year-over-year basis to $4.57 billion, it lagged the Zacks Consensus Estimate of $4.60 billion. The substantial year-year-over increase in revenues could be mostly attributed to improving market conditions as well as an encouraging operating performance. Also, better-than-expected demand for both DRAM and NAND contributed to the overall revenue growth.
Moreover, DRAM product revenues increased approximately 9% on a sequential basis, primarily due to higher bit sales volume and constant ASPs (average selling price).
NAND Flash products revenues grew 14% on a sequential basis, primarily due to an increase in bit sales volume (up 20%), which was partially offset by a 6% decline in ASPs.
Coming to the Storage Business Unit (SBU), revenues came in at $987 million during the quarter, up 9% 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.
Revenues from the Mobile Business Unit (MBU) came in at $940 million during the quarter, primarily aided by better-than-expected demand in mobile. Notably, the launch of Apple Inc.’s (AAPL) iPhone 6 drove segmental revenues.
The computing and networking business saw strong demand with revenues of $2.1 billion during the quarter, primarily due to a favorable pricing environment. Networking DRAM pricing improved 5% sequentially aided by LTE deployment in China and emerging markets.
Buoyed by a solid top-line performance and a favorable product mix, Micron’s gross profit increased from $1.28 billion in the year-ago quarter to $1.64 billion. Gross margin came in at 35.8% versus 31.7% a year ago, primarily boosted by higher revenues.
Selling, general and administrative (SG&A) expenses increased 9.7% year over year to $193 million. Research and development (R&D) expenses came in at $376 million, 17.5% higher than the year-ago quarter.
Micron reported operating income of $1.09 billion, which significantly improved from $551 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 597 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 $1.14 billion or 97 cents during the quarter compared with $881 million or 77 cents reported in the year-ago quarter.
On a GAAP basis, net income came in at $1 billion compared with $358 million reported in the year-ago quarter.
The company exited the first quarter with cash and short-term investments of $4.23 billion compared with $4.53 billion in the previous quarter. Receivables were $2.66 billion compared with $2.91 billion in the previous quarter. Micron’s long-term debt decreased to $4.61 billion from $4.96 billion in the previous quarter.
Cash generated from operations was $1.59 billion compared with $1.35 billion in the previous quarter. Free cash flow came in at $923 million. Capital expenditure was $669 million compared with $1.33 billion in the previous quarter.
Guidance
For the second quarter of fiscal 2015, Micron expects revenues in the range of $4.1 billion to $4.3 billion (mid-point $4.2 billion). The Zacks Consensus Estimate is pegged higher at $4.57 billion.
Micron expects DRAM ASPs to be flat to down low single digit in the forthcoming quarter. Projected bit cost is expected to be approximately flat, whereas bit growth is expected to be down high-single to low-double digits, all sequentially. The main factors impacting the DRAM guidance for the upcoming quarter are DRAM market conditions.
NAND ASP is expected to be flat to down low single digit sequentially. Bit costs are expected to be up mid-single digit, whereas prediction bit growth is expected to be flat to down low single digit. The main factors impacting the NAND guidance for the upcoming quarter are stable NAND 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 second quarter of fiscal 2015. R&D expenses are expected to be in the range of $385 million to $395 million.
Our Take
Micron reported mixed first-quarter fiscal 2015 results. While the bottom line surpassed the Zacks Consensus Estimate, the top line missed the same. However, year-over-year revenues and earnings compared favorably. The results were primarily boosted by improving market conditions as well as an encouraging operating performance. Also, better-than-expected demand for both DRAM and NAND contributed to the overall revenue growth.
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. 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 #2 (Buy).
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