Key Takeaways From Micron’s Q1 Earnings

by Trefis Team
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Building on its strong growth momentum over the last few quarters, Micron (NYSE:MU) reported record revenue and earnings for Q1 to start fiscal 2018 on a high note. Emerging technologies such as cloud computing, big data, and artificial intelligence are driving strong growth in the industry, while innovation and solid execution has enabled Micron to grow faster than the market. At $6.8 billion, the company’s Q1 2018 revenue grew 71% on a year-on-year (y-o-y) basis and 12% sequentially, driven by stronger DRAM ASPs and higher NAND bit volumes. A positive industry environment, combined with additional bit growth from current technologies and progress on deploying next-generation technologies in manufacturing, helped Micron beat analyst guidance yet again in Q1 2018.

The company’s ability to execute its technology roadmap, as well as the bit growth and cost reductions, has enabled Micron to significantly strengthen its cash flows and financial performance in the last few quarters. Micron’s operating margins improved by 36.5 percentage points and 4.7 points from Q1 and Q4 2017, respectively, driven by a surge in its revenues and controlled expenses. The company expects the favorable demand-supply environment to persist in the year ahead, supported by continued strong growth in both DRAM and NAND demand, reflecting broader trends in the data center and mobile markets as well as increased adoption of SSDs across enterprise, cloud and client PCs.

We have a $45 price estimate for Micron’s stock, which is slightly below the market price.

Focus On Higher Value-Add Solution To Improve Micron’s Product Mix

In addition to the positive pricing environment and higher bit volumes in DRAM and NAND, the improving product mix (towards higher value-add solutions) is an important factor driving the company’s growth momentum. In Q1, Micron’s SSD revenue grew by 61% y-o-y, driven by increasing market share. With strong demand for its client SSDs, Micron has been shipping solutions to most leading PC OEMs.

Lower Bit Growth Than Industry Due To Technology Transition Timing

Micron’s DRAM revenue represented 67% of the total revenue in Q1 2017, with 13% month-on-month growth and 88% year-on-year growth. This was due to an increase in bit shipments and ASPs. For fiscal 2018, Micron expects its bit growth to be at or slightly below industry growth rates due to the timing of the DRAM technology transition.

Micron’s Trade NAND revenue increased 2% sequentially and 47% y-o-y, driven by single-digit increase in bit shipments and ASPs. Based on the timing of the technology transition, Micron expects its bit growth in NAND to be relatively muted in the first half of fiscal 2018, but expects stronger growth in the second half of the year.

Going Forward

For the Q2 fiscal 2018, the company expects revenues between $6.8-7.2 billion, a gross margin in the range of 54-58% and EPS ranging between $2.51-$2.65.

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