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Micron Q1 Earnings Beat, Revenues Miss, Guidance Weak

Shares of Micron Technology Inc.MU went down more than 5% in after-hours trading yesterday, after the company reported lower-than-expected first quarter of fiscal 2016 revenues. Also, both the top and bottom line decreased year over year, which negatively impacted the share price. To add to the woes, the company provided a tepid second quarter guidance which was another reason for the share price drop.

Micron reported first quarter of fiscal 2016 adjusted earnings (excluding the impact of the Micron Memory Japan, Inc. acquisition and other one-time items) of 24 cents, which came ahead of the Zacks Consensus Estimate by a penny. Adjusted earnings, however, decreased from 97 cents reported in the year-ago quarter.

Micron Technology Inc. - Earnings Surprise | FindTheBest

Quarter Details

Micron's revenues in the quarter not only decreased 26.7% on a year-over-year basis to $3.35 billion but also lagged the Zacks Consensus Estimate of $3.52 billion. The year-year-over decrease in revenues was primarily due to softness in the PC DRAM segment. Also, pricing pressure in client SSD and certain eMCP segments impacted the quarterly results.

NAND Flash products represented 34% of total revenue during the quarter. Trade NAND bit sales volume was up 5% sequentially. NAND ASP and bit costs were down 7% and 6%, respectively quarter over quarter.

DRAM products accounted for 58% of total revenue during the quarter. Trade DRAM bit sales volume was up 2% sequentially. DRAM ASP and total bit costs were down 13% and 10%, respectively on a sequential basis.

Coming to the Storage Business Unit (SBU), revenues came in at $884 million during the quarter, up 4.2% on a sequential basis. The quarter-over-quarter increase was primarily due to stable ASP maintained for the fourth consecutive quarter.

Revenues from the Mobile Business Unit (MBU) came in at $834 million during the quarter, down 13% sequentially, primarily due to lower volumes and pricing pressure from the eMCP segment.

The computing and networking business saw weak demand with revenues of $1.139 billion during the quarter, primarily due to an unfavorable pricing environment, lower ASPs and lower-than-expected demand in the PC segment. The Networking segment was impacted by seasonal weakness in demand and the delay in LTE deployment in China and emerging markets.

Revenues from embedded business came in at $479 million, up a marginal 0.8% quarter over quarter, primarily due to to growth in the automotive segment.

Micron's gross profit was down 48.2% on a year-over-year basis and came in at $849 million. Gross margin came in at 25.3% compared with 35.8% a year ago, primarily due to lower revenue base.

Selling, general and administrative (SG&A) expenses decreased 7.3% year over year to $179 million. Research and development (R&D) expenses were $421 million, 11.9% higher than the year-ago quarter.

Micron reported operating income of $232 million, which decreased from $1.085 billion reported in the year-ago quarter. Operating expenses, as a percentage of revenues, increased 633 basis points on a year-over-year basis.

Micron recorded non-GAAP net income (excluding the impact of the Micron Memory Japan, Inc. acquisition and other one-time items) of $249 million or 24 cents during the quarter compared with $1.138 billion or 97 cents reported in the year-ago quarter.

On a GAAP basis, net income came in at $206 million compared with $1.003 billion reported in the year-ago quarter.

The company exited the first quarter with cash and short-term investments of $3.64 billion compared with $3.52 billion in the previous quarter. Receivables were $2.22 billion compared with $2.51 billion in the previous quarter. Micron's long-term debt increased to $6.33 billion from $6.25 billion in the previous quarter.

Cash generated from operations was $1.12 billion compared with $1.03 billion in the previous quarter. Capital expenditure was $990 million compared with $1.85 billion in the previous quarter.

During the quarter, the company repurchased approximately 57 million shares with a face value for $94 million of convertible notes for $94 million.

Guidance

For the second quarter of fiscal 2016, Micron expects revenues in the range of $2.9 billion to $3.2 billion. The Zacks Consensus Estimate is pegged higher at $3.471 billion. The company expects loss per share to be in the range of 5 cents to 12 cents for the second quarter. The Zacks Consensus Estimate is pegged at earnings of 22 cents.

Management expects gross margin to be in the range of 17.5% to 20% in the second quarter of fiscal 2016. Operating expenses are expected to be in the range of $565 million to $620 million. Operating income is expected to be in the range of ($60) million to $20 million.

Our Take

Micron reported mixed first quarter fiscal 2016 results. While the top line missed the Zacks Consensus Estimate, the bottom line surpassed the same. The year-over-year comparisons on both counts were unfavorable. The results were primarily impacted by lower-than-expected PC DRAM sales as well pricing pressure in client SSD and certain eMCP segments. The company also provided a tepid second quarter guidance.

However, the acquisitions of Elpida and Rexchip (now known as Micron Memory Japan, Inc. and Micron Memory Taiwan Co., Ltd., respectively) will benefit Micron's share in the memory market.

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

Additionally, we believe that the acquisition of Elpida will help Micron's share in the memory market.

However, it may not be easy for Micron to capture share from SanDisk Corp SNDK a key player in the NAND space.

Currently, Micron has a Zacks Rank #3 (Hold). Demand Media, Inc. DMD and FormFactor Inc. FORM are better-ranked stocks, sporting a Zacks Rank #1 (Strong Buy).

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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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