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Micron Technology, Inc. (MU - Free Report) ended fiscal 2017 on a strong note with reporting outstanding results for the fourth quarter. The memory-chip maker’s quarterly revenues and earnings not only marked a significant year-over-year growth but also came ahead of its own guidance range as well as the Zacks Consensus Estimate.
Apart from this, the company’s gross margin, operating income and free cash flow reached to a record level during the quarter. President and CEO of Micron, Sanjay Mehrotra noted that the overwhelming quarterly results were mainly “driven by favorable industry fundamentals and solid execution in deploying our next-generation, lower cost technologies and diversifying our product portfolio toward a richer mix of differentiated, high-value solutions.”
Micron shares closed up approximately 4% in the extended trading hours. Notably, Micron has gained 57.9% in the year-to-date period, significantly outperformed the S&P 500 return of just 11.4%.
Let’s now discuss fourth quarter in detail.
Revenues
Micron’s revenues in the quarter increased nearly 91% on a year-over-year basis to $6.138 billion. Also, reported revenues increased on a quarter-over-quarter basis (up 10%), mainly due to pricing improvement in the DRAM and NAND sales volume. Quarterly revenues also came ahead of the company’s own guidance range of $5.7–$6.1 billion as well as surpassed the Zacks Consensus Estimate of $5.894 billion. The year-over-year increase was primarily due to improved pricing and strong demand environment for DRAM and NAND chips.
Sales from DRAM products, which accounted for 66% of total revenue during the quarter, increased over two-folds on a year over year basis and 13% on a sequential basis. The company witnessed a 5% and 8% rise in bit shipments and average selling price (ASP), respectively, on quarter-on-quarter basis. On the other hand, sales from NAND products, which accounted for 30% of total revenues, marked a growth of 81% on year over year basis and 8% on quarter on quarter basis. A 3% rise in bit shipments and 5% increase in ASP drove the sequential revenue growth.
Business unit-wise, revenues of computing and networking business (CNBU) unit more than doubled from the year-ago quarter and reached to $2.8 billion. Apart from healthy pricing environment, the increase was led by strong demand from cloud customers as they accelerate “architecting data centers and computing capabilities.”
Revenues from the Mobile Business Unit (MBU) reached its highest level at $1.12, registering a year-over-year growth of 76%. Senior vice president and CFO, Ernie Maddock noted that strong revenue growth at MBU was “due in part to the positive progress we have made in qualifying our mobile NAND solutions.”
Storage Business Unit (SBU) revenues came in at $1.3 billion, up 71% year over year. However, sequentially the company witnessed a slight decline in revenues mainly due to flash component issue at some selected TLC 3D NAND products.
The Embedded business unit delivered record performance with revenues reaching $827 million, up 18% from the last quarter and 61% from the year-ago quarter, mainly due to strong bit demand from the consumer applications and automotive customers.
Income and Margins
Micron’s non-GAAP gross profit increased over five-fold on a year-over-year basis to $3.147 billion while margin grew to 51.3% from 18.6% reported in the year-ago quarter. Non-GAAP gross margin also came ahead of the management’s guidance range of 47% to 51%. The robust year over year improvement in gross margin was mainly driven by healthy industry pricing environment and increased adoption of the company’s advanced technology-based products.
Non-GAAP operating expenses increased nearly 13% year over year to $601 million, but came within the company’s guidance range of $575–$625 million. Operating expenses, as a percentage of revenues, decreased 670 basis points on a year-over-year basis to 9.8%.
Micron’s non-GAAP operating income came at $2.546 billion compared with just $66 million reported in the year-ago quarter and came well ahead of the company’s own guidance range of $2.1–$2.4 billion. Non-GAAP operating margin improved to 41.5% from 2.1% in the fourth quarter of fiscal 2016. Higher gross margin and reduced operating expenses as a percentage of revenues led this tremendous growth.
On a non-GAAP basis, the company reported net income of $2.387 billion. In the year-ago quarter, the company incurred net loss of $9 million. Non-GAAP earnings per share came at $2.02 beating the Zacks Consensus Estimate of $1.84. Earnings were also higher than the management’s own guidance range of $1.73–$1.87 per share.
Balance Sheet and Cash Flow
The company exited fiscal fourth quarter with cash and short-term investments of $5.428 billion compared with $4.330 billion at the end of third quarter. Receivables were $3.759 billion compared with $3.497 billion in the previous quarter. Micron’s long-term debt decreased to $9.872 billion from $40.485 billion in the prior quarter.
The company generated operating cash flow of $8.153 billion and free cash flow of $3.3 billion during the fiscal. Capital expenditure was $5.1 billion in fiscal 2017.
Outlook
The company provided outlook for the first quarter of fiscal 2018. For the quarter, Micron expects revenues in the range of $6.1–$6.5 billion. The Zacks Consensus Estimate is pegged at $6.04 billion.
Non-GAAP gross margin is projected to be in between 50% and 54%. Operating expenses on non-GAAP basis are likely to be in the range of $575–$625 million and operating income is anticipated to come in the band of $2.65–$2.85 billion.
The company expects non-GAAP earnings per share in the range of $2.09–$2.23 per share. The Zacks Consensus Estimate is pegged at $1.83 per share.
Furthermore, Micron announced a massive $7.5 billion capital expenditure plan for fiscal 2018 which according to Ernie Maddock “will be focused on technology transition and product enablement.” He also reveled that the company has not any plans for wafer capacity additions this fiscal.
Our Take
Despite the outstanding fourth quarter results and strong first-quarter fiscal 2018 outlook, shares of Micron did not gained much in the afterhour trade. This may be due to the skepticism surrounding over the continuity of healthy demand for memory chips.
However, we believe that investors should not worry about this as the demand for memory chips is now not only dependent on PC. The industry is witnessing strong demand from other markets which include smartphone makers and data center operators. Therefore, we expect supply and demand dynamics to remain favorable for the next few years.
Moreover, it is worth mentioning that the acquisition of Inotera in Dec 2016 will have some operational benefits, leading to efficient management of investment levels and cadence, followed by alignment with global manufacturing operations.
Micron is positive about the product launches and growing demand, particularly that of SSD products. We also believe that any increase in prices will have a favorable impact on the company’s overall results. We anticipate these benefits to be a tailwind for the company, going forward.
However, after acquiring SanDisk, Western Digital Corporation (WDC - Free Report) has become a key player in the NAND space, which could increase competition in the industry.
NVIDIA and FormFactor have a long term-expected EPS growth rate of 10.3% and 16%, respectively.
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Equifax is just the most recent victim. Computer hacking and identity theft are more common than ever. Zacks has just released Cybersecurity! An Investor’s Guide to inform Zacks.com readers about this $170 billion/year space. More importantly, it highlights 4 cybersecurity picks with strong profit potential.
Image: Bigstock
Micron's (MU) Q4 Earnings & Revenues Crush Estimates
Micron Technology, Inc. (MU - Free Report) ended fiscal 2017 on a strong note with reporting outstanding results for the fourth quarter. The memory-chip maker’s quarterly revenues and earnings not only marked a significant year-over-year growth but also came ahead of its own guidance range as well as the Zacks Consensus Estimate.
Apart from this, the company’s gross margin, operating income and free cash flow reached to a record level during the quarter. President and CEO of Micron, Sanjay Mehrotra noted that the overwhelming quarterly results were mainly “driven by favorable industry fundamentals and solid execution in deploying our next-generation, lower cost technologies and diversifying our product portfolio toward a richer mix of differentiated, high-value solutions.”
Micron shares closed up approximately 4% in the extended trading hours. Notably, Micron has gained 57.9% in the year-to-date period, significantly outperformed the S&P 500 return of just 11.4%.
Let’s now discuss fourth quarter in detail.
Revenues
Micron’s revenues in the quarter increased nearly 91% on a year-over-year basis to $6.138 billion. Also, reported revenues increased on a quarter-over-quarter basis (up 10%), mainly due to pricing improvement in the DRAM and NAND sales volume. Quarterly revenues also came ahead of the company’s own guidance range of $5.7–$6.1 billion as well as surpassed the Zacks Consensus Estimate of $5.894 billion. The year-over-year increase was primarily due to improved pricing and strong demand environment for DRAM and NAND chips.
Sales from DRAM products, which accounted for 66% of total revenue during the quarter, increased over two-folds on a year over year basis and 13% on a sequential basis. The company witnessed a 5% and 8% rise in bit shipments and average selling price (ASP), respectively, on quarter-on-quarter basis. On the other hand, sales from NAND products, which accounted for 30% of total revenues, marked a growth of 81% on year over year basis and 8% on quarter on quarter basis. A 3% rise in bit shipments and 5% increase in ASP drove the sequential revenue growth.
Business unit-wise, revenues of computing and networking business (CNBU) unit more than doubled from the year-ago quarter and reached to $2.8 billion. Apart from healthy pricing environment, the increase was led by strong demand from cloud customers as they accelerate “architecting data centers and computing capabilities.”
Revenues from the Mobile Business Unit (MBU) reached its highest level at $1.12, registering a year-over-year growth of 76%. Senior vice president and CFO, Ernie Maddock noted that strong revenue growth at MBU was “due in part to the positive progress we have made in qualifying our mobile NAND solutions.”
Storage Business Unit (SBU) revenues came in at $1.3 billion, up 71% year over year. However, sequentially the company witnessed a slight decline in revenues mainly due to flash component issue at some selected TLC 3D NAND products.
The Embedded business unit delivered record performance with revenues reaching $827 million, up 18% from the last quarter and 61% from the year-ago quarter, mainly due to strong bit demand from the consumer applications and automotive customers.
Income and Margins
Micron’s non-GAAP gross profit increased over five-fold on a year-over-year basis to $3.147 billion while margin grew to 51.3% from 18.6% reported in the year-ago quarter. Non-GAAP gross margin also came ahead of the management’s guidance range of 47% to 51%. The robust year over year improvement in gross margin was mainly driven by healthy industry pricing environment and increased adoption of the company’s advanced technology-based products.
Non-GAAP operating expenses increased nearly 13% year over year to $601 million, but came within the company’s guidance range of $575–$625 million. Operating expenses, as a percentage of revenues, decreased 670 basis points on a year-over-year basis to 9.8%.
Micron’s non-GAAP operating income came at $2.546 billion compared with just $66 million reported in the year-ago quarter and came well ahead of the company’s own guidance range of $2.1–$2.4 billion. Non-GAAP operating margin improved to 41.5% from 2.1% in the fourth quarter of fiscal 2016. Higher gross margin and reduced operating expenses as a percentage of revenues led this tremendous growth.
On a non-GAAP basis, the company reported net income of $2.387 billion. In the year-ago quarter, the company incurred net loss of $9 million. Non-GAAP earnings per share came at $2.02 beating the Zacks Consensus Estimate of $1.84. Earnings were also higher than the management’s own guidance range of $1.73–$1.87 per share.
Balance Sheet and Cash Flow
The company exited fiscal fourth quarter with cash and short-term investments of $5.428 billion compared with $4.330 billion at the end of third quarter. Receivables were $3.759 billion compared with $3.497 billion in the previous quarter. Micron’s long-term debt decreased to $9.872 billion from $40.485 billion in the prior quarter.
The company generated operating cash flow of $8.153 billion and free cash flow of $3.3 billion during the fiscal. Capital expenditure was $5.1 billion in fiscal 2017.
Outlook
The company provided outlook for the first quarter of fiscal 2018. For the quarter, Micron expects revenues in the range of $6.1–$6.5 billion. The Zacks Consensus Estimate is pegged at $6.04 billion.
Non-GAAP gross margin is projected to be in between 50% and 54%. Operating expenses on non-GAAP basis are likely to be in the range of $575–$625 million and operating income is anticipated to come in the band of $2.65–$2.85 billion.
The company expects non-GAAP earnings per share in the range of $2.09–$2.23 per share. The Zacks Consensus Estimate is pegged at $1.83 per share.
Furthermore, Micron announced a massive $7.5 billion capital expenditure plan for fiscal 2018 which according to Ernie Maddock “will be focused on technology transition and product enablement.” He also reveled that the company has not any plans for wafer capacity additions this fiscal.
Our Take
Despite the outstanding fourth quarter results and strong first-quarter fiscal 2018 outlook, shares of Micron did not gained much in the afterhour trade. This may be due to the skepticism surrounding over the continuity of healthy demand for memory chips.
However, we believe that investors should not worry about this as the demand for memory chips is now not only dependent on PC. The industry is witnessing strong demand from other markets which include smartphone makers and data center operators. Therefore, we expect supply and demand dynamics to remain favorable for the next few years.
Moreover, it is worth mentioning that the acquisition of Inotera in Dec 2016 will have some operational benefits, leading to efficient management of investment levels and cadence, followed by alignment with global manufacturing operations.
Micron is positive about the product launches and growing demand, particularly that of SSD products. We also believe that any increase in prices will have a favorable impact on the company’s overall results. We anticipate these benefits to be a tailwind for the company, going forward.
However, after acquiring SanDisk, Western Digital Corporation (WDC - Free Report) has become a key player in the NAND space, which could increase competition in the industry.
Currently, Micron has a Zacks Rank #1 (Strong Buy). Some other stocks worth considering in the technology sector are NVIDIA Corporation (NVDA - Free Report) and FormFactor, Inc. (FORM - Free Report) , both sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
NVIDIA and FormFactor have a long term-expected EPS growth rate of 10.3% and 16%, respectively.
4 Stocks to Watch after the Massive Equifax Hack
Cybersecurity stocks spiked on recent news of a data breach affecting 143 million Americans. But which stocks are the best buy candidates right now? And what does the future hold for the cybersecurity industry?
Equifax is just the most recent victim. Computer hacking and identity theft are more common than ever. Zacks has just released Cybersecurity! An Investor’s Guide to inform Zacks.com readers about this $170 billion/year space. More importantly, it highlights 4 cybersecurity picks with strong profit potential.
Get the new Investing Guide now>>