Monday, December 20, 2010

Micron Technology (NASDAQ: MU): Q1 Earnings Preview 2011

Micron Technology Inc. (NASDAQ: MU), the largest U.S. DRAM maker, is scheduled to release its fiscal first-quarter earnings after the closing bell on Wednesday, December 22, 2010. Analysts, on average, expect the company to report earnings of 30 cents per share on revenue of $2.38 billion. In the year ago period, the company reported earnings of 23 cents per share on revenue of $1.74 billion.

Micron Technology, Inc., together with its subsidiaries, engages in the manufacture and marketing of semiconductor devices worldwide.  Through its worldwide operations, Micron manufactures and markets a full range of DRAM, NAND and NOR flash memory, as well as other innovative memory technologies, packaging solutions and semiconductor systems for use in leading-edge computing, consumer, networking, embedded and mobile products. 

In the preceding fiscal-fourth quarter, the Boise, Idaho-based company's net income was $342 million, or 32 cents a share, compared with a loss of $100 million, or 12 cents a share, in the year-earlier quarter. Revenue surged to $2.49 billion from $1.3 billion. Analysts, on average, expected the company to report earnings of 39 cents a share on revenue of $2.66 billion.

The company has benefited from a rebound in semiconductor demand and Windows 7 PC upgrade cycle. Recently, the Semiconductor Industry Association predicted that worldwide chip sales for 2010 would total $300.5 billion, an increase of 33 percent over 2009 sales. That's more than the group had predicted in June, when it forecast 2010 sales of $290.5 billion. However, weakness in seasonal demand as well as high inventories at both DRAM makers and some major module houses have caused the average contract prices of the DRAM chips to drop dramatically. On the other hand, NAND business has remained relatively stable because of the strong memory requirements of smart phones, MP3 players and other consumer electronic devices.

Chairman and CEO Steve Appleton recently told shareholders at Micron's annual meeting that the chip maker's strong balance puts it in a good position to ride out the latest drop in chip prices. Micron Technology has disclosed that a new NAND flash fabrication facility in Singapore, which it invests in with Intel, is scheduled to commence volume production in the second quarter of 2011. 

In October, the company reached a 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 was paid in October, $40 million will be paid by January 31, 2011, and the rest $35 million by March 31, 2011.

During the quarter under review, Micron Technology announced that it has entered into separate privately negotiated purchase and exchange agreements. The company repurchased $91 million of 4.25% Convertible Senior Notes due 2013 and $176 million of 1.875% Convertible Senior Notes due 2014, in principal amounts. The company also exchanged $175 million of Existing 1.875% Notes for $175 million of new 1.875% Convertible Senior Notes due 2027 in principal amounts. Following the transactions, Micron will have outstanding $139 million of 4.25% Notes, $949 million of Existing 1.875% Notes and $175 million of New 1.875% Notes, in principal amounts. In connection with these transactions, the company expects to record one-time charge of about $90 million in first quarter. Additionally, the repurchase of $91 million of 4.25% Notes and $176 million of Existing 1.875% Notes is expected to reduce shares used in diluted calculation by about 43 million beginning in its second quarter of fiscal 2011.

In terms of stock performance, Micron shares have lost nearly 25% since the beginning of the year. 

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