Micron Technology Inc. (MU) reported adjusted first quarter 2011 loss per share of 2 cents, as against the Zacks Consensus Estimate of earnings 28 cents per share. Consequently, shares fell 29 cents in after market trade, representing a decline of 3.50%. The miss was largely due to decreasing average selling prices (ASPs), stemming from the softening in PC demand.
The adjusted loss per share attributable to Micron shareholders excludes a one-time payment from Samsung, gains from changes in currency exchange rates and non-controlling interests.
Revenue
Total revenue was $2.25 billion, up 29.4% year over year and down 9.7% sequentially. The reported revenue was below the Zacks Consensus Estimate of $2.38 billion.
Revenues from the DRAM memory segment decreased 19% sequentially due to a 23% decline in ASPs, partially offset by a 5% increase in volumes. Revenues from the NAND segment were marginally up from the previous quarter, driven by a 20% growth in the volume of units sold offset by a 15% increase in ASPs.
Operating Results
The gross margin in the quarter was 23.3%, down 220 basis points (bps) from 25.5% in the year-earlier quarter. The fall in the quarter’s gross margin was attributable to lower ASPs, partially offset by higher volumes and lower manufacturing costs.
Selling, general and administrative expenses jumped 44.3% year over year to $140.0 million. Research and development expenses surged 35.0% year over year to $185.0 million. The operating margin was 17.3%, up 570 bps from 11.6% in the prior-year quarter.
The improvement in the operating margin was due to $200.0 million received from the Samsung patent cross-license agreement. However, excluding this one-time payment and other items, adjusted operating margin was 8.8%.
Net income attributable to Micron was $155.0 million or 15 cents per share, compared to $204.0 million or 23 cents in the year-ago quarter. Excluding one time items and noncontrolling interests, adjusted net loss attributable to Micron is $19.0 million or 2 cents.
Balance Sheet & Cash Flow
Micron ended the first quarter with cash and short-term investments of $2.4 billion, down from $2.9 billion in the previous quarter. Receivables were $1.36 billion, compared with $1.53 billion in the previous quarter. Inventories increased 6.8% from the prior quarter to $1.89 billion. At quarter end, Micron had $1.82 billion in long-term debt, up from $1.65 billion in the prior quarter.
Cash generated from operations was $732.0 million, compared to $326.0 million in the prior-year quarter. Capital expenditure increased significantly from the year-ago quarter to $465.0 million.
Our Take
Although the quarter’s top and bottom lines missed the Zacks Consensus Estimates, we remain positive on Micron, owing to its 10-year patent cross-licensing agreement with Samsung Electronics Co. Under the terms of the agreement, Samsung will pay $275 million to Micron. Of the total sum, $200.0 million was paid on October 12, $40 million will be paid by January 31, 2011, and the remaining $35 million by March 31, 2011.
However, ASP declines and slowing demand in notebook, desktop and DRAM businesses, noticed during the quarter remain concerns. Most of the analysts expect the DRAM segment to remain in the oversupply territory resulting in a continuous decline in ASPs through fiscal 2011. But the analysts remain somewhat positive about improving NAND demand.
Micron is facing several lawsuits citing antitrust and patent matters, mainly from Rambus Inc. (RMBS). We think it is useful to track these lawsuits, since the outcome could impact Micron’s results in any given quarter.
Currently, we have a short-term Hold recommendation on Micron shares, as indicated by the Zacks #3 Rank.
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