Micron’s Q3’16 Earnings Preview: Focus On Investment Priorities Will Pay Off Soon

-20.51%
Downside
93.78
Market
74.54
Trefis
MU: Micron Technology logo
MU
Micron Technology

Leading memory chipmaker, Micron Technology (NASDAQ:MU) is set to release its Q3 2016 earnings on June 30th. The company has seen a year-on-year decline (at an escalating rate) in its earnings over the last few quarters. A number of factors in addition to the weak macroeconomic environment are hindering the company’s performance.  The continuing decline in PC sales has led to weaker memory chip prices, trends that have impacted the entire industry.  The company’s growth rate has also been impacted by its lagging DRAM and NAND output, due to the ongoing technology transitions.

While the ongoing technology transitions have been quite distruptive to Micron’s growth in the last few quarters, the company expects to generate stronger bit growth and cost reductions in the second half of calendar year 2016. The company is confident that things will turnaround in the second half of the year, as new products with more efficient manufacturing on advanced nodes hit the market. Micron has lost over 30% of its stock value in the last year. However, the stock has seen a turnaround since May on account of upgrades by some leading brokerages.

pic

Relevant Articles
  1. Up 12% This Year On AI Tailwinds, Will Micron Stock See Further Gains Following Q2 Results?
  2. Digital Infrastructure Stocks Including Micron Had A Solid Year. What Lies Ahead?
  3. Why Digital Infrastructure Stocks Such As Micron Are Outperforming
  4. Will Surging Demand For High-Bandwidth Memory Help Micron Stock?
  5. How Will The Chinese Chip Ban Impact Micron?
  6. With Memory Markets Moving Toward Equilibrium, Is Micron Stock A Buy?

Micron’s 2016 Investment Priorities – Technology Transition Will Enable Micron To Gain Back The Lost Market Share 

  • Transition to 20 nm DRAM, which Micron expects to drive about a third of its aggregate capex: 20nm is expected to account for >50% of Micron’s DRAM fab output by the end of the calendar year 2016.
  • Move to 1X process node into manufacturing by the end of the year and advance work on 1Y and 1Z: The transition to 1X node will lead to approximately 20% reduction in cost compared to the 20 nm node.
  • Roughly 50% of Micron’s investment is targeted at enabling a non-volatile memory transition, predominantly relating to the ramping of Gen 1 3D NAND, the completion of the Singapore fab, and then enabling Gen 2 3D NAND in the fall of 2016 (which will be ramped in 2017). More than 50% of the NAND bits Micron produces will be from 3D NAND by 2016 fall.
  • Gen 2 3D NAND is double the density of Gen 1 3D NAND, which is going to allow for about an incremental 30% cost reduction.
  • Technology enablement, component sampling, and ecosystem development of 3D XPoint.

Micron believes that the bit growth and the cost reductions from the transition to 20 nm DRAM and 3D NAND will enable the company to return to participating in the market in a way that it was able to do a couple of fiscal years ago. So while we do not expect Q3 2016 to be particularly strong, we firmly believe the above factors can enable Micron to re-accelerate its revenue growth and gain the lost bit market share in the future.

Note: The Inotera acquisition, which was initially expected to close in mid-July, has been delayed. Micron expects to provide an update on the same toward the latter part of calendar 2016. The company claims that the delay is not related to the ability of Micron to obtain financing. 

Have more questions about Micron? See the links below:

>> Micron Technology: Calendar Year 2015 In Review

>> Micron’s Expected Growth In Calendar 2016: Trefis Estimate

>> Why We Have A Bullish Outlook On Micron Technology

>> Micron’s Q2’16 Earnings Review: Technology Transitions Will Lead To A Better Second Half

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com.
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Micron here

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research