Micron Technology Inc. (MU) reported adjusted fourth quarter earnings per share of 30 cents, which missed the Zacks Consensus Estimate of 40 cents. Subsequently, shares fell 8 cents after the market closed, representing a decline of 1.13%.
 
Revenue
 
Total revenues were $2.49 billion, up 91.5% year over year and 9.0% sequentially. However, the reported revenues were below the Zacks Consensus Estimate of $2.68 billion. The quarter’s revenues include significant contribution from the Numonyx acquisition, which was completed in May.
 
Revenues from the DRAM memory segment decreased 14% sequentially due to a 12% decline in unit sales volume and a slight decrease in average selling prices (ASPs). Revenues from the NAND segment were down 9% from the previous quarter due to a 7% decline in the volume of units sold, coupled with a slight dip in ASPs.
 
Operating Results
 
The pro forma gross profit margin in the quarter was 31.3%, down 580 basis points (bps) from 37.1% in the previous quarter. The fall in the quarter’s gross margin was the due to the combined effect of lower ASPs and volumes shipped as well as higher cost of production. During the quarter, the cost of manufacturing Inotera products was higher, leading to lower yield.
 
The operating expense of $338.0 million was slightly higher than the previous quarter’s $332.0 million. The operating margin was 17.4%, down 620 bps from 23.6% in the previous quarter.
 
On an adjusted basis, Micron generated a net profit of $339.0 million (excluding the impact of restructuring expenses), compared with $497.0 million (excluding the impact of restructuring expenses and gain from the acquisition of Numonyx) in the previous quarter. The adjusted earnings per share were 30 cents, compared with 47 cents in the previous quarter.
 
On a fully diluted GAAP basis, the company recorded a net profit of $342.0 million or 32 cents per share, compared with $939.0 million or 92 cents in the previous quarter.
 
Balance Sheet & Cash Flow
 
Cash and short-term investments at quarter-end were $2.9 billion, up from $2.3 billion from the previous quarter. Accounts receivables were $1.53 billion, compared with $1.57 billion in the previous quarter. Inventories increased 1.3% from the prior quarter to $1.77 billion. At quarter end, Micron had $1.65 billion in long-term debt, down from $1.72 billion in the prior quarter.
 
Cash generated from operations was $1.1 billion, compared with $889.0 million in the third quarter.
 
Our Take
 
Although the quarter’s results missed our estimates, we remain positive on Micron due to the 10-year patent cross-license 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 will be paid by October 12, $40 million by January 31, 2011, and the rest $35 million by March 31, 2011.
 
However, ASP declines and slowing demand in notebook, desktop and DRAM businesses, noticed during the quarter remain concerns.
 
We currently have a short-term Strong Sell rating (Zacks #5 Rank) on Micron shares.
 
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