Micron Earnings Review: Improvement In Demand and Supply Fundamentals Signal Stronger Future Growth For Micron

Micron Technology (NYSE:MU) announced its Q1 2017 earnings on December 22nd. (Fiscal years end with September.) At $3.9 billion, the company’s revenue increased 19% y-o-y  but earnings per share ($0.16) declined 13%. However, these metrics came in at the higher end of its guided range and both displayed sequential improvement. Going ahead, Micron expects to see improvement in its revenues and margins, driven by increases in DRAM pricing. After suffering net losses consecutively for the last couple of quarters, Micron’s bottom-line turned positive in Q1’17. Robust overall demand for memory products and a stabilization in the PC market, coupled with tight industry supply of memory products, together are likely to help the company improve its bottom-line going forward.

Micron’s DRAM revenue, which contributed to 61% of its overall revenue in Q1, increased 24% sequentially, because of an 18% increase in bit shipments and a 5% increase in ASPs. The strong pricing improvement helped the DRAM gross margins in Q1 improve by approximately 8 percentage points.The company claims that PC DRAM ASPs in Q1 were up by approximately 55% compared to the price at the trough in the last 18 months. Additionally, the company’s non-volatile NAND revenue increased 26%, as a result of 26% increase in bit shipments.

For Q2, the company has guided revenues and gross margins of $4.5 billion and 33%, respectively. Further, Micron expects its Q2 earnings per share expects earnings per share of $0.63. This is significant given that Micron has been suffering net losses for the last couple of quarters.

Improving Industry Conditions And A New Technology Ramp-Up Signal Stronger Future Growth For Micron

The company claims that it expects the DRAM supply growth to remain around 15%-20%, as it doesn’t expect suppliers to add significant wafer capacity. Further, Micron expects the DRAM demand growth to range between 20% to 25%, outpacing the supply growth. This factor is likely to contribute to improvements in DRAM ASPs going forward. We believe that the PC DRAM revenues, which contributed around 20% of the DRAM revenues for Micron in Q4, are likely to remain on an upward trajectory in the near term. This is because the PC market seems to be better-positioned going ahead, 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 the free Windows 10 upgrades. The stabilizing PC market is likely to translate into higher revenues and improved margins for Micron going ahead.

Micron expects the future NAND demand to remain in the range of 40%-45%, outpacing the supply growth of 30%-40%. Further, the company is focused both on ramping up the production of first generation (Gen 1) 3D NAND and TLC (triple level cell) flash and on commencing the production of its second generation 64 layer 3D NAND. Micron believes that the ramping up of the 3D and TLC production will deliver 22% to 25% cost per bit improvement in fiscal 2017. Additionally, the company expects the recently closed Inotera acquisition to continue to strategically benefit it going ahead.

See our complete analysis for Micron here

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