Positive Trend In DRAM And NAND Pricing To Help Micron Report Stronger Quarterly Results

Micron Technology (NYSE:MU) is set to report its Q1’17 earnings on Wednesday, December 21st. (Fiscal years end with August.)  Micron’s stock price is up by 14% since the last earnings announcement, reflecting the strong investor confidence in the company’s performance a this juncture. It should be noted that, over the last couple of quarters, Micron’s performance has been significantly affected by declining DRAM and NAND prices caused by an oversupply situation in the industry. However, the trends in NAND and DRAM pricing seem to be reversing its direction now. Accordingly, we can expect the company to report stronger Q1 results. This is evident from the revised guidance provided by Micron in a recent investor presentation. The company expects its Q1 revenues to come at approximately $4 billion, which is at the higher end of its previously guided range. In addition, Micron expects to report gross margins at 25%, which is again at the higher end of its previous estimate. The company attributed the improvement in its key metrics to improvement in both demand and supply fundamentals.

Micron Poised To Deliver Strong Operational Growth In FY 2017

The company believes that it is on track to deliver stronger operational performance resulting from cost per bit reduction and bit growth. Micron aims to ramp-up its 3D NAND output and DRAM output at the 20 nanometer process node to improve its margins and deliver stronger revenue growth. Specifically, the company pointed out in the Q4 earnings conference call that it expects to reduce DRAM and NAND cost per bit by 20% and 25%, respectively, from its ongoing cost reduction initiatives.

It must be noted that Micron announced its plan to implement a cost saving program in the May quarter, aiming to cut down costs by approximately $80 million per quarter in fiscal 2017. The company aims to achieve this target by: 1) targeting a more focused set of projects and programs; 2)  closing out a material number of open positions permanently; 3) reducing other positions on a temporary basis; and, 4)  pursuing other non-headcount related spending reductions as well. About half of these savings will appear in the gross margin line of the company while the remainder will be reflected in operating expenses.

Stabilising PC Market Contributing To Improvement In DRAM Prices

Micron’s revenue growth and margin improvements are largely dependent upon DRAM sales, which contributed to around 60% of its overall revenues in Q4. One of the major factors driving down DRAM prices in the past was the continued weakness in the PC market. PC shipments witnessed a year-on-year decline of 11.5% and 4.5% in Q1’16 and Q2’16 respectively. Nevertheless, a report by IDC suggests that PC market is better positioned in the second half of 2016, because of an improvement in the inventory levels, stronger business demand and a sequential decline in the prior year comps arising from the expiration last year of free Windows 10 upgrades.

See our complete analysis for Micron here

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