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Micron Beats Estimates; Memory Market Recovering?

Posted on Wednesday, Oct 7th 2009

On September 29, Micron Technology, Inc. (NYSE: MU), the leading memory chipmaker, reported its fourth quarter and fiscal year 2009 results. Although the company booked its fourteenth straight quarterly loss, there was one bright spot in that losses were less than last year and beat estimates. Micron’s shares have more than quadrupled since the beginning of the year. Are these signs that the memory market is also recovering? Let’s take a closer look.

Micron reported Q4 revenue of $1.3 billion, down 10% from $1.45 billion last year but up 17% from $1.1 billion last quarter. Net loss improved to $88 million or $0.10 per share from a loss of $344 million or $0.45 per share last year and $290 million or $0.36 per share last quarter. Analysts expected loss of $.20 per share on revenue of $1.28 billion. Q3 analysis is available here.

For the full year, Micron reported annual revenue of $4.8 billion and a net loss of $1.8 billion or $2.29 per share.

Micron generated $357 million in Q4 and $1.2 billion in fiscal year 2009 in cash flows from operations. The company ended the year with $1.5 billion in cash and investments. Gross margin improved to 12% from 11% last quarter as operating expenses declined 19.3%. Micron expects gross margin to increase significantly in the first quarter with continued per bit cost reductions combined with its expectation of sequential ASP increases for both DRAM and NAND products.

Revenue from sales of DRAM products in Q4 increased 28% sequentially due to a 19% increase in DRAM sales volumes and an 8% rise in ASPs. Revenue from sales of NAND Flash products increased 10% sequentially due to a 23% increase in NAND sales volumes, but the increase was partially offset by an 11% decrease in ASPs due to sales to Intel, Micron’s IM Flash JV partner. Unit sales from the imaging segment increased 30% sequentially, the effect of which was offset by a decline in the ASPs due to a shift to wafer foundry sales of products.

Micron’s key customers include IBM and Apple, and the company is also expected to benefit from the upcoming Microsoft Windows 7 release. IBM uses its memory and image-sensing chips while Apple uses its NAND products for iPods. Micron provided the imaging chipfor the original iPhone, but the current iPhone 3GS does not have any Micron components. In the fourth quarter, Micron sold 65% of its stake in its imaging solutions business, Aptina Imaging Corporation, to Riverwood Capital and TPG Capital. Micron recently gained market share and got back to the top 3 with 14.6% share in May after Elpida slipped to No.4. But according to the latest iSuppli report, Elpida gained share to climb back to the No.3 spot with a 16.5% share driven by a 32% increase in its DRAM ASPs. Micron is now No.4 with a 13.9% share. Last year Micron last year acquired Qimonda’s 35.6% stake in Inotera for $400 million, and there is speculation that it will take over the STM-Intel spinoff, Numonyx, which has design wins in the iPhone 3GS. If Micron manages this acquisition, it would be further consolidating its position in the memory industry.

Samsung leads the memory chip market with a 34.1% share and Hynix is No.2 with 21.7%. After more than three years, things have finally started looking good for the sector and Micron could benefit from this trend. Last month, semiconductor sales were $19.1 billion, up 5% from July 2009. Though sales are still down 16% from August 2008, the rate of decline is flattening. Gartner expects the semiconductor industry to return to growth in 2010 and 2011. It also expects 2009 sales to decline 17%, better than the 24% decline forecast at the beginning of the year.

For the first quarter, Micron expects to return to profitability. The stock  is currently trading around $8 with market cap of about $6.7 billion. It hit a 52-week high of $8.66 on September 22 after it was upgraded to Buy by UBS. Its 52-week low was $1.59 on November 20.

 Chart for Micron Technology Inc. (MU)

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