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Micron (MU) Q2 Earnings & Revenues In Line, Guidance Upbeat

Micron Technology Inc.MU reported modest second-quarter fiscal 2017 adjusted earnings per share (excluding the impact of one-time items but including stock-based compensation expense) of 77 cents, matching the Zacks Consensus Estimate.

However, the company had incurred a loss of 5 cents per share in the year-ago quarter.

Quarter Details

Micron's revenues in the quarter increased 58.4% on a year-over-year basis to $4.648 billion, almost matching the Zacks Consensus Estimate of $4.645 billion. Also, reported revenues increased on a quarter-over-quarter basis (up 17%), primarily due to pricing improvement in the DRAM and NAND sales volume. Also, a 21% increase in DRAM average selling prices (ASP) supported the revenue growth.

DRAM products accounted for 64% of total revenue during the quarter. DRAM revenues increased 22% on a sequential basis. On the other hand, NAND sales volume increased around 11% quarter over quarter.

Storage Business Unit (SBU) revenues came in at $1.04 billion, up 21% sequentially. The increase was primarily due to strong growth in client and cloud SSD shipments.

Revenues from the Mobile Business Unit (MBU) increased 5% sequentially and came in at $1.08 billion. The increase was primarily due to stronger pricing environment.

The computing and networking business (CNBU) saw a 30% sequential increase in revenues to $1.92 billion, primarily due to an increase in 20-nanometer shipment growth across all segments coupled with pricing improvement.

Revenues from the embedded business came in at $590 million, up 2% from the last quarter, primarily due to strength in the automotive and consumer segments.

Micron's gross profit was up 194.3% on a year-over-year basis to $1.70 billion. Gross margin was 36.7% compared with 19.7% a year ago, primarily due to a strong pricing environment, higher revenue base and favorable product mix.

Selling, general and administrative (SG&A) expenses increased 6.9% year over year to $187 million. Research and development (R&D) expenses were $473 million, up 17.4% on a year-over-year basis. Operating expenses, as a percentage of revenues, decreased 570 basis points on a year-over-year basis to 14.2%.

Micron reported operating income of $1.044 billion against an operating loss of $5 million in the year-ago quarter.The results were driven by strong pricing environment and cost-reduction initiatives.

On a GAAP basis, the company reported net income of $894 million. In the year-ago quarter incurred net loss of $97 million. On a non-GAAP basis the company reported net income of $1.031 billion compared with $12 million reported in the year-ago quarter.

The company exited fiscal second quarter with cash and short-term investments of $3.898 billion compared with $4.169 billion in the previous quarter. Receivables were $2.891 billion compared with $2.453 billion in the previous quarter. Micron's long-term debt decreased to $11.308 billion from $8.490 billion in the prior quarter.

During the quarter, the company generated cash of $2.543 billion. Capital expenditure was $1.2 billion in the second quarter of fiscal 2017.

Guidance

For the third quarter of fiscal 2017, Micron expects revenues in the range of $5.2-$5.6 billion. The Zacks Consensus Estimate is pegged at $4.633 billion. The company expects earnings per share in the range of $1.43-$1.57. The Zacks Consensus Estimate is pegged at 68 cents.

Management expects gross margin in the range of 44-48% in fiscal third-quarter 2017. Operating expenses are expected in the range of $560-$610 million and operating income is likely to be within $1.8-$2 billion.

Going forward, Micron expects favorable supply and demand dynamics to continue in 2017.

Our Take

Micron reported modest second-quarter fiscal 2017 results. Both the top and the bottom line increased on a year-over-year basis, primarily due to pricing improvement in DRAM and NAND sales volume. The third quarter guidance was also encouraging.

Going forward, the acquisitions of Elpida and Rexchip (now known as Micron Memory Japan, Inc. and Micron Memory Taiwan Co., Ltd., respectively) will increase Micron's traction in the memory market.

It is worth mentioning that the acquisition of Inotera in Dec 2016 will have some operational benefits, leading to efficient management of investment levels and cadence, followed by alignment with global manufacturing operations.

Micron is positive about the product launches and growing demand, particularly that of SSD products. The company has been constantly innovating memory technologies, spanning DRAM, NAND and NOR Flash memory solutions, which are widely used in the latest mobile computing devices as well as in consumer, networking and embedded products.

We also believe that any increase in prices will have a favorable impact on the company's overall results. We anticipate these benefits to be a tailwind for the company, going forward.

Notably, Micron has outperformed the Zacks categorized Electronic-Semiconductor industry over the last six months. Share price of Micron rose 69.6% compared with the industry's gain of just 50.1%.

However, after acquiring SanDisk, Western Digital has become a key player in the NAND space, which could increase competition in the industry.

However, after acquiring SanDisk, Western Digital WDC has become a key player in the NAND space, which could increase competition in the industry.

Currently, Micron sports a Zacks Rank #1 (Strong Buy). Some other stocks worth considering in the technology sector include Seagate Technology PLC STX and Fortinet, Inc. FTNT , both of which carry a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here

Seagate and Fortinet have a long term-expected EPS growth rate of 8.17% and 20.62%, respectively.

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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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