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Will Micron’s Q3 Live Up To Investors’ Expectations?
Posted by: ICRAOnline (IP Logged)
Date: June 19, 2014 11:45AM

Micron Technology (MU) is scheduled to announce its third-quarter 2014 results after market closes on June 23. In the run up to the earnings release, analysts are looking confident and have positive expectations from the quarter. Investors’, too, have their hopes tied to Micron which is visible from the stock’s movement. The stock touched a new one-year high of $32.43 on June 18. So how is Micron positioned in the third quarter? Will the company’s performance this quarter aid in the current momentum?

Looking Back

Micron had an outstanding second quarter with both revenue and earnings beating the Street’s expectations and registering solid year-over-year growth. The improvement was due to better pricing environment and volume growth in the DRAM segment – thanks to the positive market sentiment. Moreover, the acquisition of Japanese DRAM chip-maker Elpida was of immense help as it boosted the company’s overall market share.

NAND sales grew as higher capacity helped it to meet growing demand from solid state drive (SSD) manufacturers. However, pricing remained a bottleneck.

Estimate Revision Trend

As per data compiled by Yahoo Finance, analysts’ average earnings per share (EPS) expectation stands at $0.69, 1,625% higher than $0.04 reported in the third quarter 2013. The huge difference is on account of low demand and strict pricing scenario prevailing during the year-ago quarter.

In the trailing four quarters, Micron’s reported earnings surpassed estimates thrice. Following the trend, the company could beat current quarter estimate since analysts have revised their expectations positively.

Among 26 analysts, eight revised their estimates upward in the past 30 days of which three did it in the past seven days. Analysts expect third quarter revenue to grow 67.6% to $3.89 billion.

Why Such Optimism?

Industry experts believe that pricing trend in the DRAM space will continue to be favorable with supply remaining under control. As per Micron’s guidance in the last quarter, DRAM bit production would reduce by a low-single digit. The other two memory stalwarts, Samsung (SSLNF) and SK Hynix (HXSCL) have also restricted their production. This will act in favor of the pricing of DRAM chips. Micron has already indicated a price hike last month. Though this will not have any impact this period, Micron could reap the benefit in the coming quarters.

Usage of DRAM is also getting popular in both low-end and high-end smartphones, thereby boosting demand for mobile DRAM (mDRAM). With Elpida’s assistance, Micron could be a prime beneficiary of the trend. Tech giant Apple (AAPL) is one of the biggest customers of Elpida’s mDRAM chips for its smartphones. Micron had noticed good demand for its mDRAM solutions in the last quarter and the trend is expected to continue.

Last, but not the least, increasing demand for SSDs could also boost NAND fundamentals for Micron. Micron expects a higher volume of NAND sales through the SSDs. As SSDs have higher bit selling price, margins are expected to grow despite the overall pricing decline for NAND chips.

Last Words

Overall improvement in the DRAM industry will prove beneficial for Micron. Like the previous quarters, NAND sales will be driven by demand for SSDs. Although NAND pricing will be a concern, better cost management could help increase Micron’s margin.

Stocks Discussed: MU, SSNLF, HXSCL, AAPL,
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