Micron Technology Inc. (MU) reported adjusted fourth quarter fiscal 2011 loss per share of 14 cents, as against the Zacks Consensus earnings estimate of 1 cent per share. Micron shares fell 3.41% in after market trade.
The miss was largely due to subdued PC sales, which adversely affected the demand for memory chips. Another aspect which affected the company’s fundamentals badly was the oversupply of DRAM (dynamic random access memory). Hence, the price of DRAM, which provides the main memory in PCs, dropped as demand from makers of laptops and desktop PCs remained sluggish.
Revenue
Micron reported revenue of $2.14 billion, down 14.2% year over year. The reported revenue however surpassed the Zacks Consensus Estimate of $2.13 billion.
Revenue from sales of NAND products exceeded sales of DRAM. This had a favorable effect on the company’s financial results. Apart from the shift to NAND, Micron continued to diversify its product portfolio within DRAM and NAND. Consequently, Micron has achieved comparatively higher average selling prices compared to industry averages.
Operating Results
The company’s gross margin for the fourth quarter was 15.0%, down from 31.3% in the year-ago quarter. The decline was primarily due to significant drop in DRAM ASPs.
Selling, general and administrative expenses increased 9.9% year over year to $155.0 million. The improvement was due to higher legal costs associated with the pending Rambus Inc. (RMBS) lawsuit. Research and development expenses grew 6.1% year over year to $209.0 million, mainly due to higher labor costs. The operating margin was (2.4%) as against 17.4% in the year-ago quarter.
Net loss attributable to Micron was $135.0 million or 14 cents per share, compared to net income of $342.0 million or 30 cents in the year-ago quarter. Excluding the effect of the other income relate to gain on sale of facility, restructuring expense and gain on sale of property, plant and equipment and equity in net income (losses), adjusted net loss came at $87.0 million or 9 cents per share, compared to net income of $368.0 million or 32 cents in the prior-year quarter.
Balance Sheet & Cash Flow
Micron ended the fourth quarter with cash and short-term investments of $2.16 billion, up from $2.40 billion in the previous quarter. Receivables were $1.50 billion, unchanged from the previous quarter. Inventories increased 0.6% from the prior quarter to $2.1 billion. The company had $2.0 billion in long-term debt, up from $1.57 billion in the prior quarter.
Cash generated from operations was $354.0 million, compared to $589.0 million in the prior quarter. Capital expenditure increased $394.0 million from the prior quarter to $928.0 million.
Micron repurchased $150.0 million worth of its outstanding shares.
Our Take
Micron’s fourth quarter results were disappointing as the bottom line badly missed the Zacks Consensus Estimate, while the top line managed to beat marginally. The quarter even saw declines in ASPs.
However, some analysts believe that ongoing cost reduction discipline could mitigate the adverse effect of ASP declines to some extent, going forward. Moreover, Micron’s shift in focus from traditional PC DRAM to specialty DRAM could also boost its fundamentals. The analysts are also positive about favorable DRAM pricing in the near term.
Competition from SanDisk Corp. (SNDK), the legal tussle with Rambus Inc. and weakening PC sales are concerns.
Micron Technology has a Zacks #3 Rank, implying a short-term Hold recommendation.
