Micron Technology (MU, Financial) recently revealed its second-quarter results for fiscal 2015, with better-than-expected earnings on the back of increased demand for its chips for computers and smartphones. The company also reported a 1% climb in revenues for the quarter, beating the consensus estimate by a slight margin. However, an unimpressive guidance for fiscal 2015 saw Micron’s shares remaining relatively flat at $27.13 during the day’s trading, erasing the nearly 5.5% gain during after-hours trading.
Strong product migrations, higher sales boost revenues
Micron’s revenue for the second quarter of fiscal 2015 came in at $4.17 billion, beating the consensus estimate of $4.15 billion and up 1% compared to the prior-year figure of $4.10 billion. Net income for the quarter grew to $934 million or $0.78 per diluted share compared to $731 million or $0.61 per diluted share in Q2 2014. The company’s non-GAAP earnings of $0.81 a share comfortable beat the consensus estimate of $0.73 a share. This marks the company's eighth successive quarterly profit after a string of seven straight quarterly losses. The company attributed its strong performance to its progress in its product migrations and technology, helped by higher sales and lower income tax expenses.
Comparing the results to the company’s Q1 performance, revenues were down 9% in Q2 owing to drop on volume sales of its DRAM technology products as well as fall in the average selling prices for both DRAM and NAND products. The lower average selling prices also resulted in a 2% drop in Micron’s consolidated gross margin for the quarter, compared to Q1 2015. However, this was partially offset by lower production costs during the quarter.
Micron, , which competes with businesses such as SanDisk Corp. (SNDK, Financial) and the privately held Toshiba Semiconductor & Storage Products Co. and Samsung Electronics Co. Ltd (SSNLF, Financial) in the Semiconductor Memory Chip market, also repurchased around $200 million worth of common stock in the second quarter as part of the company’s existing $1 billion stock buyback program.
The road ahead
Micron’s earnings report comes just days after the company announced collaboration with Intel (INTC, Financial) for the design of memory-boosting 3D chips for tablets, smartphones and digital cameras. While the company recently unveiled its new range of "ultra" memory products for next-generation cars, Micron also announced its transition to 20-nanometer circuitry, aiming to enhance chip performance while reducing chip size and manufacturing costs.
While these developments indicate Micron’s focus on new product innovations to drive future growth, experts also foresee profitability for the company. Although demand for DRAM for personal computers remains soft, Mobile DRAM demand is expected to remain solid. Further, experts forecast that while 2G mobile DRAM are likely to become standard specs for low-end smartphones by the end of 2015, the percentage of 3G mobile DRAM for smartphones is projected to grow from the previous 10%-30% to almost 35%.
However, Micron’s guidance for Q3 2015 belied market expectations. The company projected revenues in the range of $3.85-$4.05 billion for the third quarter, much below the consensus estimate of $4.29 billion. The midpoint of the range is around 6% lower than revenues generated in the second quarter.
Final thoughts
Micron reported robust earnings for the second quarter of FY2015, along with revenues that were in line with estimates. With its recent product launches and collaboration with Intel, the company is also moving in the right direction to ensure future growth. However, Micron’s lower-than-expected guidance for the third quarter led to the company’s stock falling fractionally in late trading after the initial high. Experts foresee Micron’s earnings growing at an average annual rate of around 11% over the next five years, with a peak in 2016. However a significant dip in earnings is expected in 2018. Consequently, the Micron stock currently carries a "buy" guidance for the short to mid term.
