Tag Archives: Micron

Micron sees memory chip recovery coming later in year, shares rise
March 21, 2019 12:08 am|Comments (0)

(Reuters) – U.S. chipmaker Micron Technology Inc on Wednesday said it sees a recovery in the memory chip market coming and reported a quarterly profit that beat estimates as cost controls helped offset falling demand and prices, sending its shares up nearly 5 percent.

The logo of U.S. memory chip maker MicronTechnology is pictured at their booth at an industrial fair in Frankfurt, Germany, July 14, 2015. REUTERS/Kai Pfaffenbach

Micron makes NAND storage chips that are used in phones and internet servers as well as DRAM chips that help computer processors communicate with those storage chips.

The company beat revenue expectations for the fiscal second quarter ended Feb. 28. Although it gave a forecast for its fiscal third quarter that was below Wall Street’s expectations, Micron said demand is likely to begin growing again by its fourth quarter.

The results come against the backdrop of a glut in the global semiconductor industry triggered by waning demand for smartphones and spotty purchasing patterns by cloud-computing vendors, which hurt chipmakers such as Intel Corp earlier this year.

Meantime, Micron trimmed its spending plans and said it had idled some factory lines to bring its chip output in line with lower demand, helping keep profits flowing and a share buyback plan on track.

For its fiscal second quarter, Micron generated nearly $ 1 billion in free cash flow and a profit of $ 1.71 per share, excluding items. That was down from $ 2.82 a year earlier but above Wall Street expectations of $ 1.67, according to IBES data from Refinitiv.

“Certainly Micron has not been in a situation before where it’s been able to deliver such healthy profitability and cash flow in an adverse industry environment,” Chief Executive Sanjay Mehrotra said in an interview with Reuters.

Kinngai Chan, an analyst with Summit Insights Group, said investors were focusing on the outlook for a recovery in the second half of the calendar year, with the fiscal third quarter forecast representing “the bottom for Micron’s near-term sales and gross margin.”

The Boise, Idaho-based company said on Wednesday it expects revenue between $ 4.6 billion and $ 5 billion for its fiscal third quarter, falling short of analyst expectations of $ 5.3 billion according to IBES data from Refinitiv. The company cut planned capital expenditures for the 2019 fiscal year to $ 9 billion, Micron executives said, down from a previous forecast of between $ 9 billion and $ 9.5 billion.

Revenue fell to $ 5.84 billion from $ 7.35 billion, beating expectations of $ 5.3 billion.

The company said it bought back 21 million shares of its common stock for $ 702 million during the quarter as part of its $ 10 billion share buyback program, leaving a net cash position of $ 2.99 billion.

Reporting by Sayanti Chakraborty in Bengaluru and Stephen Nellis in San Francisco; editing by Sriraj Kalluvila and Leslie Adler

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Micron says China ban unfair but won't hurt revenue
July 5, 2018 6:34 pm|Comments (0)

(Reuters) – Micron Technology Inc on Thursday played down the likely impact on its business of a temporary Chinese ban on some chip sales but said it would appeal a decision that has added to U.S.-China trade tensions.

FILE PHOTO: FILE PHOTO: The logo of U.S. memory chip maker MicronTechnology is pictured at their booth at an industrial fair in Frankfurt, Germany, July 14, 2015. REUTERS/Kai Pfaffenbach/File Photo/File Photo

The firm’s estimate that the ban imposed by a Chinese court in a patent infringement lawsuit would weaken quarterly revenue by just 1 percent drove its shares as much as 3.6 percent higher and lifted stocks of other U.S. chipmakers.

Shares in the sector had been shaken on Tuesday by the first reports of the ruling, which added to a growing list of intellectual property disputes between Washington and China in the technology sector.

Micron said the ruling by a Fuzhou Court in a lawsuit filed by rivals United Microelectronics Corporation (UMC) and Fujian Jinhua Integrated Circuit Co temporarily bans it from selling some memory chips and solid state drives in China.

The chipmaker said it would comply with the ruling, but would request the court to reconsider or stay its decision.

“The Fuzhou Court issued this preliminary ruling before allowing Micron an opportunity to present its defense,” said Joel Poppen, Micron’s general counsel.

The lawsuit followed Micron’s complaint in December against Chinese government-backed Fujian and UMC in a California court alleging misappropriation of its trade secrets and other misconduct.

China is trying to build its own semiconductor industry as part of its “Made in China 2025” strategy and as it seeks to lower its reliance on foreign companies, many of them U.S.-based.

The dispute follows a ban on U.S. firms supplying parts to China’s telecom equipment maker ZTE as well as the drawn-out wait for Chinese regulators to approve Qualcomm Inc’s $ 44 billion takeover of NXP Semiconductors.

“It certainly appears semiconductors could move to the prime time in negotiations between the Trump administration and China,” Evercore ISI analyst C.J. Muse said. “Near-term this could favor non-US chipmakers vs. US chipmakers.”

Several Chinese government-backed entities have poured billions into research and for buying companies with a trove of chip patents. Micron itself was the target of a failed takeover attempt by China’s Tsinghua Unigroup in 2015.

The Chinese ban on Micron targeted its products sold through retail outlets and represented only a small portion of the chipmaker’s revenue.

Analysts believe the ban is largely symbolic as hurting the U.S. chipmaker would end up creating more pain for local Chinese firms who would have to rely on Korean firms Samsung Electronics and SK Hynix, pushing up memory chip prices.

“At the end of the day, the Chinese government is not going to impact its own local companies,” said Kinngai Chan of Summit Insights Group.

Micron said it expects quarterly revenue to be within the previously guided range of $ 8.0 billion to $ 8.4 billion.

Shares of Micron, which fell 5.5 percent on Tuesday after the ban, was up 1.9 percent at $ 52.46 in afternoon trading on Thursday.

Other chipmakers also gained. Qualcomm Inc rose 3.2 percent, Broadcom Inc 2 percent and Intel Corp up 2.6 percent.

Reporting by Sonam Rai and Supantha Mukherjee in Bengaluru; Editing by Arun Koyyur

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Micron: A Great Opportunity
April 12, 2018 6:14 pm|Comments (0)

After hitting a high of over $ 61 this past march, Micron Technology’s (NYSE: MU) stock lost around 17% of its value and currently trades at $ 50.48. The decline came after the company announced its Q2 results, which didn’t quite live up to the hype of investors, even though Micron set company performance records in key metrics such as revenue, gross profit, EPS, and cash generation, driven by a strong demand for their DRAM and NAND products in the automotive market.

Q2 Results and Guidance

In their latest earnings call, Micron announced revenues were $ 7.35 billion, up 8% from the prior quarter and 58% from the prior year, and non-GAAP operating margin was 49%, up 3% compared to the prior quarter and 24% from the prior year period. This reflects a positive business environment and broad-based demand for Micron’s memory and storage solutions (cloud, enterprise, and mobile markets).

As a result of their performance, the company generated $ 4.3 billion in cash from operations, compared to $ 1.8 billion in the past year. Capex (net of third party-contributions) was $ 2.1 billion, resulting in a very positive free cash flow of around $ 2.2 billion, especially when compared to last year’s free cash flow of approximately $ 600 million.

According to the company’s guidance, revenue is expected to be in the range of $ 7.2 billion and $ 7.6 billion, with a gross margin of 57%-60%. An increase in operating expenses is also expected, primarily from an increase in R&D (funding of fourth-generation 3D NAND technology). Based on a share count of approximately 1.25 billion shares, these results should drive diluted EPS to $ 2.83 (+/- 7 cents). The company will also continue to evaluate additional opportunities to accelerate de-leveraging, while still providing a high rate of return for its investors.

Micron expects DRAM demand, which accounted for about 71% of their revenue this past quarter, to grow by about 20%, while they expect NAND demand to increase by more than 45%.

With smartphones and other devices looking to include and improve features that are data intensive, Micron is offering power efficient LPDRAM’s and TLC Managed NAND’s. The LPDRAM’s, which are great at optimizing battery life, should be in high demand considering battery life is still one of the main problem with smartphones. The TLC Managed NAND’s are also great news, since Managed NANDs allows for increased speed and system performance, while saving resources in hardware and software development.

According to Micron, they are also working with automotive customers to provide the needed components to support the new features that require rapid data analysis and storage, such as machine learning and other AI capabilities. Working directly with automotive customers is great news, since this should translate to better integration and performance of their components, as well as higher satisfaction from their customers.

Micron’s broad technology portfolio and strong innovation engine position us well for these growth trends. We continue to partner with our customers to ensure our technology and engineering roadmaps deliver the critical features for tomorrow’s solutions.

-Sanjay Mehrotra – CEO, president & director

Their increased spending in R&D has resulted in better products and should continue to do so for the foreseeable future. Micron seems to be investing in the technologies with increasing demand, which should translate to increased sales.

Financial Indicators and Comparison

(Chart made with data from Finviz)

Looking at some industry key metrics, we find that Micron’s P/E of 6.04 is the lowest of its industry peers, which might indicate Micron is undervalued compared to its competitors. This statement is supported by the PEG ratio (price/earnings to growth ratio), which is used to determine a stock’s value while taking into account the company’s earnings growth. Ratios lower than 1 (0.20 for Micron) are considered as a sign that the stock is undervalued and thus the company should provide a higher return than its peers. Micron’s PEG is also the lowest of its competitors.

The company’s debt to equity ratio of 0.36 is healthy, considering that it’s close to the average of the comparable companies, and the profit margin of 38.7% is also a very positive sign, since it is clearly the highest of the companies analyzed. Also, the company has a solid ROI of 19.20%.

As seen in the liquidity ratios, Micron has a quick ratio of 2.10, which means they can pay their short-term obligations with no problems. Even though this ratio may be a little high, the cash per share ratio of (6.74), which measures the percentage of a firms share price immediately accessible for spending, tells us that company has available cash to spend on R&D, which is fundamental in this industry. This is also supported by the fact that the company hasn’t declared dividends, as they are heavily spending on product and technology qualifications, and the funding of their fourth-generation 3D NAND technology, both of which primarily impact R&D. From 2013 to 2017, Micron increased their R&D by around 77%, and I expect their increased spending in R&D to continue.

DuPont Analysis

(Chart taken from Finbox.io)

The DuPont model breaks down ROE into three separate components: net profit margin (how much profit the company gets out of its revenues), asset turnover (how effectively the company makes use of its assets) and equity multiplier (a measure of how much the company is leveraged). As seen in Table 1, MU’s net profit margin has increased for the last two fiscal years, reaching 33% in 2017, above each of the comparable companies. Regarding asset turnover, MU’s turnover ratio has maintained itself around 0.6x, slightly below the average of its peers. Finally, the equity multiplier has decreased from 2.0x in 2015 to 1.7x in 2017, meaning that the company has been deleveraging. These numbers are positive for MU, since they show the ROE of the company is increasing because net profit margin is increasing, and not the equity multiplier.

Price Targets and Fair Value Estimates

(Chart taken from Finbox.io)

Using 6 different models, Finbox.io calculated Micron’s average fair value at $ 66.79, which represents a 32.3% upside. In the chart above we can also see that the average price target for Wall Street analysts is $ 72.72 (44.05% upside). Similar to this number is the one provided by TipRanks, which consulted 22 analysts and found the average price target to be $ 73.67 (45.94% upside). Out of the 22 consulted analysts, 18 recommend strongly buying, 3 holding and just 1 selling, with the high projection being $ 100 (98% upside). However, in both Finbox and TipRanks there is a low projection of $ 35, which represents a 30.6% downside.

Conclusion

After losing money in 2016, Micron has been having nothing but positive results. Last year results were very encouraging, and that trend has carried over to this year. Business looks great, with Micron’s sales growing and demand expected to keep rising. With a heavy expenditure in R&D, we should expect new and better products, which should translate to higher revenue. Both their P/E (6.04) and PEG (0.2) ratios are considerably low, and their net profit margin has consistently risen for the past few years. Also, price targets and fair value estimates all point towards high upside. It’s clear then, that backed by solid financial metrics and a positive outlook, Micron’s share should rise in the near future.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Micron: Up, Up And Away
March 29, 2018 6:00 am|Comments (0)

Micron (MU) posted its latest earnings report last week; the chipmaker managed to beat the street’s revenue and EPS forecasts yet again in Q2 and came out with a rather strong guidance for the third quarter. But those are just the highlights of its Q2 earnings report. Evaluating Micron’s latest results on a granular level reveals a particularly encouraging picture, one that suggests that the chipmaker’s growth momentum could stay intact and that its shares could rally further from the current levels over the next few months at least. Let’s take a closer look to have a better understanding of it all.

The Rockstar Segment

Let me start by saying that Micron’s Q2 earnings report was particularly encouraging for long-side investors. Its basic financial figures have already been reviewed by fellow contributors here on Seeking Alpha so we won’t be covering the same points again in this article. But just to rehash a bit here, for the sake of establishing talking points for our following discussion, the chipmaker’s revenue and EPS figures for the second quarter surged to $ 7.35 billion (up 58.1% YoY) and $ 2.67 (up 246% YoY) respectively.

I’d like to point to readers that this growth isn’t attributable to just one or two operating divisions. Fact of the matter is that all of Micron’s operating divisions were up on a year-on-year basis in its second quarter. I’ve attached a chart below for your reference. Its Storage Business Unit was up on a YoY basis, and down sequentially, but we have to remember that Micron operates in a highly cyclical industry so it’s only fair if we compare its financials with comparable quarters from the past.

The robustness of Micron’s sales growth is perhaps best highlighted when we drill deeper into its Compute and Business Unit (CNBU). As the chart attached below would indicate, the segment already accounts for a major share of the company’s overall sales and operating income generation. Apparently, the same segment also grew at the fastest pace amongst all other business divisions during the second quarter.


Its CNBU segment posted an impressive YoY sales growth of 92.5% during Q2 FY18. But here’s the interesting part. The segment had posted an equally stellar year-on-year sales growth of 82% during Q2 FY17. So, instead of its growth slowing down due to cyclicality or law of large numbers working against it, the chipmaker actually accelerated its sales growth in Q2 FY18. Not only that, but the segment’s operating margins surged to its highest levels in two years.

CNBU’s recent growth was driven by a combination of elevated average selling prices and strong demand for memory products. Moving forward, as we’ll see in the next section of the article, DRAM prices are forecasted to further head north over the course of 2018. So, the recent growth in Micron’s CNBU segment isn’t necessarily a one-time thing.

ASP Evolution

Micron makes different kinds of semiconductor solutions but sales of its DRAM and trade NAND memory products accounted for 71% and 25% of its overall sales in the second quarter. Anyone following the memory space closely would know that DRAM module prices have risen quite a bit over the recent months.

Now, analysts appear to have split opinions on where NAND and DRAM spot prices could be headed next. But IC Insights came out with a note last week, forecasting that DRAM and NAND ASPs could rise by as much as 36% and 10% respectively in 2018, after evaluating recent supply-demand trends of the same. As a result, the research firm ended up raising their overall sales growth forecasts for both NAND and DRAM for the year.

“The average selling price (ASP) of DRAM is now expected to be much stronger this year than originally forecast, IC Insights said. The firm expects DRAM ASPs to increase by 36 percent this year after growing by a whopping 81 percent last year…NAND ASPs are now expected to increase by 10 percent this year, following a 45 percent increase last year, IC Insights said.” – Source.

Speaking on their bit growth, management noted the following in their second quarter conference call:

“We now expect Micron’s calendar 2018 DRAM bit output growth to be in line with the industry’s 20% range… For the NAND market, we believe the ongoing transition to 64-layer 3D NAND creates the opportunity for a more balanced industry dynamic in calendar 2018 versus the constrained conditions we saw in 2017. We expect industry bit output growth to be somewhat higher than 45% in calendar 2018…We believe we will be somewhat above industry bit output growth in calendar 2018 for NAND.”

What this basically means is that Micron is positioning itself to increase its bit output over the course of 2018, at even higher ASPs for both NAND and DRAM products. So, unless something unexpected comes up, it’s highly likely that the chipmaker will post stellar sales and profit growth rates in FY18 as well.

The Sell-Off

Shortly after Micron announced its Q2 earnings, its shares dropped on concerns regarding the company getting caught amid trade wars between China and the U.S. The former came out with a list of potential retaliatory tariffs on food items ranging from litchis to walnuts, but nothing for semiconductors.

Here’s a link to the translated list. Chances are that this might not be the final list and China might come out with another list that imposes tariffs on U.S-based semiconductor firms at a later date to promote domestic firms. While I’m not an expert on international tariffs, I think we should consider that:

  1. Micron isn’t merely competing on price. It owns genuine IP and Chinese firms would have to significantly invest in R&D and capital expenditure before they can even think of closing in on the performance gap. The chart attached below should highlight Micron’s capex spending routine;


2. China would be risking its technological advances in the field of computing by imposing tariffs on standard memory products. This isn’t something that China would want to fiddle with, at least not until its domestic memory manufacturers can compete globally in terms of performance;

3. Trump Administration won’t necessarily sit idle while the country’s semiconductor industry withers away;

Also, if there was any material risk to Micron’s growth story due to the evolving tariffs-related situation between U.S and China, at least a few analysts would have sounded the alarm bells. But instead, the broad swath of analysts covering the memory manufacturer have only raised their price targets for the name.

Old Target

New Target

Room for Stock Appreciation

Citi

$ 55

$ 65

20%

Stifel

$ 85

$ 95

75%

Mizuho Securities

$ 66

$ 70

29%

Cowen

$ 55

$ 65

20%

Baird

$ 60

$ 100

84%

Mizuho

$ 55

$ 66

22%

Credit Suisse

$ 60

$ 70

29%

Evercore ISI

$ 60

$ 80

48%

Keybanc

$ 53

$ 65

20%

Nomura Instinet

$ 55

$ 100

84%

Investor Takeaway

Micron just posted fantastic quarterly results yet again. The chipmaker is showing signs of its growth momentum continuing well over the course of 2018 as well, so much so that analyst price targets for Micron across the board are substantially higher than its current stock price. Hence, I believe this is a good time to be bullish on Micron, and any potential weakness in its shares should be considered as a buying opportunity.

Author’s Note: I’ll be writing another report on Micron over the next week. Make sure to click that “Follow” button at the top of this page to get a notification as soon as the report goes live. Thanks!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Micron: Is The Catbird Seat Heating Up?
March 25, 2018 6:00 am|Comments (0)

Micron (MU) reported Q2 revenue of $ 7.35 billion and eps of $ 2.82. The company beat on revenue by $ 70 million and beat on eps by $ 0.08. MU fell nearly 8% after earnings. I had the following takeaways on the quarter.

Top Line Growth Remains Gaudy

Last quarter Micron grew total revenue by 71% Y/Y. It followed up that performance this quarter with revenue growth of 58% Y/Y and 8% sequentially. The tremendous leverage driven by higher sales are helping the bottom line. Gross margin improved to 58% from 37% in the year earlier period. This double-impact caused gross profit on a dollar basis to more than double.

Revenue from the Compute & Networking Business Unit (“CPBNU”) was up over 90%, due to increases in average selling prices (“asp”) for products sold into the client market, growth in the cloud driven by out-sized increases in DRAM content per server, and increased sales into the enterprise market. The Storage Business Unit’s (“SBNU”) sales of Trade NAND products was up 45% Y/Y but fell off 9% sequentially; asp for NAND component sales fell, partially offset by increases in SSD sales. Meanwhile, the Mobile Business Unit (“MBU”) revenue was up 20% Y/Y driven by Micron’s low-power DRAM product and sales of mobile DRAM into smartphones.

On a product basis DRAM revenue was up 14% Q/Q and 76% Y/Y. ASP and gigabits sold increased Y/Y in the low 40% range, and low 20% range, respectively; they also grew sequentially. Trade NAND revenue was up 28% Y/Y, but fell 3% sequentially. ASP decreased Y/Y in the high single digits while gigabits sold increased in the low 40% range. ASP also fell sequentially in the mid-teens range. According to management, the ASP decline was caused by a mix shift in the company’s SBU NAND components. This could be a trend to watch going forward.

Micron Is Sitting In The Catbird Seat

The importance of the cloud and gaming segments is creating explosive demand for memory and storage capacity. The secular shift from the previous PC-based market to the current dealer market is amplifying that demand. Micron is poised to exploit this secular shift. According management, memory is also making possible applications like artificial intelligence and virtual reality:

This market now supports a healthy demand environment with several secular demand drivers that I have discussed earlier. More specifically, memory is making possible applications such as AI and VR, and enabling new cloud-based business models which deliver a fundamental value far in excess of a price per bit.

Management estimates DRAM bit growth in the 20% range in calendar year 2018. NAND bit growth could exceed 40%, driven by the transition to 64-layer 3D NAND. The NAND bit growth is predicated on an increase in supply to meet customer demand.

The Catbird Seat Could Get Hot

DRAM makes up over 70% of Micron’s revenue. Its increased asp and bit growth across products has led to the company’s outsize top line growth. Can the DRAM market hold up? Which industry players will increase capacity that could potentially drive down asp? Micron may have partially answered that question on the earnings call.

Micron wants to diversity its portfolio of LPDRAM, MCP and managed storage solutions to meet customer demands. The company also wants to expand its 64-layer 3D TLC NAND capabilities and its portfolio of low-power solutions with 1X LPDRAM and 1X nanometer DRAM designs. Micron needs additional capacity to meet the demands needed by growth in the cloud, artificial intelligence, and increased memory needs in the mobile space. It announced plans to build a $ 7.5 billion clean room space:

Accordingly, we are executing plans to add clean room space in our NAND and DRAM SAS network. With the support of the Singapore Economic Development Board, we have finalized plans to build additional shelf space in Singapore, adjacent to our existing NAND Center of Excellence. The primary purpose for this new clean room space will be to transition our existing wafer capacity to future 3D NAND nodes …

The first phase of this clean room is expected to be completed by the summer of 2019, with initial wafer output from the facility expected in the fourth quarter of calendar 2019. We are also building out incremental clean room space in our fab in Hiroshima, Japan, which will be available for production at the beginning of calendar year 2019. This clean room space will be used to continue our 1Y nanometer DRAM transition. For fiscal year 2018, we expect our capital expenditures to be in the upper end of our previously guided range of $ 7.5 billion, plus or minus 5%. Long term, we target capital expenditures as a percentage of revenue to be in the low 30% range.

Micron has cash on hand of nearly $ 8 billion. Free cash flow for the first half of the year was $ 4 billion, which equates to a run-rate of $ 8 billion. The company has ample cash and cash flow to fund its capital expenditure requirements. Its $ 4.2 billion capital expenditures through the first half of 2018 was exactly 30% of its total revenues. Maintaining this spend should not be a problem going forward.

In the short term, capacity expansion could help meet customer demand requirements without being disruptive to DRAM and NAND prices. What happens if demand peaks or if Samsung (OTC:SSNLF) or Hynix (OTC:HXSCF) follows suit? NAND prices are already facing headwinds. If DRAM prices stagnate it could hurt the MU growth story.

Conclusion

This was another strong quarter for Micron. Declining NAND prices and the uncertain impact on DRAM from capacity expansion make MU a sell.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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