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Earnings Preview: Micron Technology - Analyst Blog

Micron Technology Inc. ( MU ) is scheduled to announce its first quarter fiscal 2012 results on December 21, and we notice that analyst reaction is mixed at this point.

Fourth Quarter Overview

Micron delivered fourth quarter 2011 loss per share of 41 cents per share, as against the Zacks Consensus earnings estimate of 1 cent per share. The huge miss was largely due to subdued PC sales, which adversely affected the demand for memory chips. Another aspect which hurt the company's fundamentals was the oversupply of DRAM (dynamic random access memory).

Micron' fourth quarter revenues fell 14.2% year over year. Improved NAND sales were more than offset by weakness in the DRAM business.

Weak DRAM ASPs (average selling price) were also a drag on the quarter's margins. Moreover, higher operating costs (supported by higher legal and labor costs) pushed the quarter to a loss zone.

Management did not provide any revenue guidance for the first quarter of 2012. But it expects DRAM bit production growth to increase at a double-digit percentage rate in the November quarter. DRAM cost/bit is expected to decline by a high single to low double-digit percentage rate in the November quarter, suggesting that if DRAM prices remain stable, commodity DRAM gross margin might fall slightly on a sequential basis. NAND bit growth is expected to be up by a mid single-digit percentage rate and NAND cost per bit will drop by a double-digit percentage rate sequentially.

For more details of fourth quarter earnings, please see: Micron Misses Again, Shares Tumble

Agreement of Analysts

The revision in the analysts' estimates in the past 30 days indicates mixed sentiments. Out of the 21 analysts providing estimates for the first quarter, 4 made downward revisions while 2 made upward revisions. Out of 22 analysts providing estimates for fiscal 2012, 7 made downward revisions while 2 made upward revisions.

The analysts with a negative outlook believe that weak commodity DRAM pricing and lackluster demand for PCs will continue to pressure Micron's revenue and margins.

But the analysts with a positive perspective are of the opinion that a secular shift from commodity DRAM to specialty DRAM and share gains in the NAND market could help Micron to expand margins. Most of the analysts expect Micron to increase its market share in the NAND market in 2012 with higher output and increased ownership in IMFS (the joint venture between Micron and Intel Corp. ( INTC )).

Magnitude of Estimate Revisions

The Zacks Consensus Estimate for the first quarter moved to a loss of 6 cents from a loss of 4 cents in the past 30 days. Similarly, the Zacks Consensus Estimate for fiscal 2012 dropped from 21 cents to 12 cents over the past 30 days. Our estimates indicate a negative sentiment of the analysts.

Recommendation

We expect Micron to deliver a disappointing quarter on account of weakening DRAM pricing. But we remain positive on the specialty DRAM and NAND front due to growing demand for SSDs (solid state drive). SSDs feature specialty DRAM and NAND bases.

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.

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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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