Dismal Start to Micron FY12 - Analyst Blog

Micron Technology Inc. ( MU ) reported adjusted first quarter fiscal 2012 loss per share of 11 cents, worse than the Zacks Consensus loss per share estimate of 8 cents.

The miss was largely due to subdued PC sales, which adversely affected the demand for memory chips. Another aspect which affected the company's fundamentals was the oversupply of DRAM (dynamic random access memory). Hence, the price of DRAM, which provides the main memory in PCs, dropped as demand from makers of laptops and desktop PCs remained sluggish.


Micron reported revenue of $2.09 billion, down 7.2% year over year. Revenue from sales of NAND Flash products was 6% higher than the year-ago quarter on the back of an 18% increase in sales volume, partially offset by a 10% decrease in average selling prices ( ASP ). Revenue from sales of DRAM products remained unchanged in the quarter, as a 14% increase sales volume was offset by a 12% decrease in ASPs. Sales of NOR Flash products were approximately 14% of total net sales.

Revenue from sales of NAND products exceeded sales of DRAM. This had a favorable impact on the company's financial results. Apart from the shift to NAND, Micron continued to diversify its product portfolio within DRAM and NAND. Floods in Thailand have left PC makers short of hard-disk drives, compelling them to reduce purchases of other components. That has resulted in a 10% to 15% drop in DRAM orders.

Operating Results

The company's gross margin for the first quarter was 14.6%, down from 23.3% in the year-ago quarter. The decline was primarily due to significant drop in DRAM ASPs.

Selling, general and administrative expenses increased 7.9% year over year to $151.0 million. Research and development expenses grew 24.3% year over year to $230.0 million, mainly due to higher labor costs. The operating margin was (3.9%) as against 17.3% in the year-ago quarter.

Net loss attributable to Micron was $187.0 million or 19 cents per share, compared to net income of $155.0 million or 15 cents in the year-ago quarter. Excluding the effect of the other income relate to gain on sale of facility, restructuring expense and gain on sale of property, plant and equipment and equity in net income (losses), adjusted net loss came at $107.0 million or 11 cents per share, compared to net loss of $10.0 million or 1 cent in the prior-year quarter.

Balance Sheet & Cash Flow

Micron ended the first quarter with cash and short-term investments of $1.92 billion, down from $2.16 billion in the previous quarter. Receivables were $1.38 billion, down from $1.50 billion in the previous quarter. Inventories increased 0.8% from the prior quarter to $2.1 billion. The company had $1.97 billion in long-term debt, up from $1.86 billion in the prior quarter.

Cash generated from operations was $404.0 million, compared to $354.0 million in the prior quarter. Capital expenditure increased to $750.0 million from $928.0 million the prior quarter.

Our Take

Micron's first quarter results were disappointing as the bottom line badly missed the Zacks Consensus Estimate. The quarter's revenue too came below the year-ago level. The quarter even saw declines in ASPs.

However, some analysts believe that ongoing cost reduction discipline could mitigate the adverse effect of ASP declines to some extent, going forward. Moreover, Micron's shift in focus from traditional PC DRAM to specialty DRAM and NAND could also boost its fundamentals. The analysts are also positive about favorable DRAM pricing in the near term.

But we think that it would not be easy to capture share from SanDisk Corp. ( SNDK ), a key player in the NAND zone. However, Micron is free from one worry - it is getting a clean chit in the antitrust suite brought by Rambus Inc. ( RMBS ). Hence, we could expect that Micron will be saved from incurring further legal expenses, which would ultimately support its fundamentals.

Micron Technology has a Zacks #3 Rank, implying a short-term Hold recommendation.

MICRON TECH ( MU ): Free Stock Analysis Report

RAMBUS INC ( RMBS ): Free Stock Analysis Report

SANDISK CORP ( SNDK ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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