Micron Technology Inc.
(
MU
) is scheduled to announce its fourth quarter fiscal 2012 results
after markets close on September 27, 2012. In the run up to the
earnings release, we notice some downward movements in
estimates.
Third Quarter Overview
Micron delivered third quarter adjusted loss per share of 29
cents, wider than the Zacks Consensus Estimate of 19 cents loss per
share. The dismal performance was due to lackluster average selling
prices (ASP) per unit and higher operational costs.
The company's reported revenue increased 1.5% year over year and
81% sequentially to $2.2 billion. After witnessing revenue decline
for the past four quarters, the sequential improvement during the
quarter was mostly attributable to higher DRAM shipments and
favorable ASP.
Rising costs and a significant drop in NAND ASP resulted in
gross margin decline. Micron recorded an operating loss due to
higher operating costs.
Guidance
Micron did not provide any specific guidance for revenue or
earnings. But the company expects NAND selling prices to decline
modestly in the fourth quarter of 2012, while NAND bit growth is
expected to increase in the high single-digit range. DRAM cost per
bit is expected to increase slightly. Micron also expects NOR
revenue to be relatively flat sequentially.
On the other hand, management is optimistic as PC demand is
improving with better availability of hard drives and rise in
corporate spending and expects demand to grow in the range of mid
to high 20.0%.
Agreement of Analysts
The analysts expect that the emerging demand for ultrabook,
smartphone and tablet will increase the demand for Micron's NAND
business. DRAM is also gaining popularity in both low-end and
high-end smartphones. Increasing adoption of high end smartphones
and tablets has consequently increased the demand for mobile
DRAM.
They also expect that the expansion of NAND in Singapore will
benefit flash market pricing from fiscal 2013 onwards. Also a
potential boost in the PC market due to
Microsoft Corp.
's (
MSFT
) Windows 8 operating system, could ramp the demand for DRAM.
Analysts expect SSD demand to rise in the coming quarters, which
will eventually contribute to Micron's success.
But the key concern of the analysts remains the pricing of the
DRAM and NAND chips and their respective end market demand. A
lackluster PC market will continually pressurize Micron's
fundamentals.
Out of the 25 and 21 estimates for the fourth quarter and fiscal
2012, respectively, 1 estimate each was moved downward in the last
30 days.
Magnitude of Estimate Revisions
The Zacks Consensus Estimate for the fourth quarter and fiscal
2012 remained unchanged at 21 cents loss per share and $1.01 loss
per share, respectively over the past 30 days. However, the
estimate for the fourth quarter of fiscal 2012 dropped 19.0% (2
cents) in the past 90 days.
Recommendation
We believe that pricing would act as a deciding factor for
Micron's fourth quarter. Also, lackluster demand for desktop PCs
will remain an overhang over the DRAM fundamentals.
However, we remain encouraged by Micron's pending Elpida buyout
(a bankrupt Japanese chipmaker) that could bring in a larger DRAM
market share. Also,
Apple Inc.
's (
AAPL
) reliance on Elpida would be a win-win situation for Micron, going
forward.
On the other hand, we believe that it won't be easy for Micron
to capture share from
SanDisk Corp.
(
SNDK
), a key player in the NAND zone.
Micron Technology has a Zacks #3 Rank, implying a short-term
Hold rating.
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