Wednesday, September 28, 2011

Micron Technology Inc. (NASDAQ: MU): Q4 Earnings Preview 2011

Micron Technology Inc. (NASDAQ: MU), the largest U.S. DRAM maker, is scheduled to release its fiscal fourth-quarter earnings after the closing bell on Thursday, September 29, 2011. Analysts, on average, expect the company to report earnings of 2 cents per share on revenue of $2.13 billion. In the year ago period, the company reported earnings of 32 cents per share on revenue of $2.49 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. DRAM chips are a key component in personal computers, while NAND flash chips are critical to portable electronics.

In the preceding fiscal-third quarter, the Boise, Idaho-based company's net income was $75 million, or 7 cents per share, compared to $939 million, or 92 cents per share, in the year-ago quarter. Revenue fell 6.6% to $2.14 billion from $2.29 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 16 cents per share on revenue of $2.37 billion.

The company is in the midst of a technology and product portfolio expansion to exploit growth areas like smart phones, tablets, enterprise, and solid state drives. Micron is the only U.S.-based manufacturer of DRAM modules, the prices of which have been weakening because of concerns about oversupply and weak personal computer demand. Memory chips are subject to some of the most volatile swings in pricing in the semiconductor industry. They are considered commodities and companies compete fiercely on price. In 2010, DRAM accounted for about 60 percent of Micron's $8.48 billion annual sales. Sales of PCs have grown at a slower-than-expected pace in recent quarters, as some consumers worried about a tough economy held off on large purchases, while others chose Apple's (NASDAQ: AAPL) iPad and other tablets over laptops.

In August, the company said it could still be a couple of quarters before DRAM has reached its low. "We've been in decline on [average selling prices] in the DRAM business for quite some time," Chief Executive Steve Appleton said during an analyst meeting. "I can't tell you whether or not we're going to bottom right now or last for another quarter or two." Appleton said while Micron's stock currently is hurt by its ties to DRAM, investors eventually will realize the industry is better at managing supply and demand and down-cycles won't be as severe as they were in the past.

Despite the weakness in DRAM, Appleton said Micron has one of the strongest balance sheets in the memory industry and is well positioned to take advantage of rising demand for flash memory. He said the percentage of revenue Micron derives from flash surpassed DRAM for first time in the current quarter. With the noticeable downturn in the PC market and the DRAM chips that are used in them, many companies in the Memory Chips sector seem to be focusing more on flash memory chips used in smartphones and tablet devices. One of key drivers for NAND technology has been Apple's iPhone and iPad. Industry experts expect the trend to continue as Flash memory has set the industry standard for data storage on smartphones and other portable devices. Mobile phone analysts at Gartner project smartphone sales to reach roughly a billion units by 2015, providing the memory chip industry with significant growth opportunities going forward.

Appleton said further that Micron is confident in its strong patent portfolio, noting he has looked at the recent "IP frenzy with a little bit of interest but also some amusement."

Micron also has been involved in litigation, with a case involving Rambus Inc. (RMBS) currently being argued in court. Appleton said the trial should wrap up in the next month or two and then be turned over to the jury for deliberation.

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