Micron Tech’s Q4 Results Beat

Micron Technology Inc. (MU - Snapshot Report), a provider of advanced semiconductor solutions fourth-quarter of 2009 earnings beat the Zacks Consensus Estimate by 9 cents. The company posted a net loss of 10 cents per share, much better than the 45 cents loss reported in the year-ago period and 36 cents in the previous quarter as demand and price for memory chips improved.

Revenue for the quarter was $1.30 billion, down 10.1% from the year-ago period. However, revenue was above the consensus estimate of $1.27 billion and increased sequentially by 17.7%.

We remain encouraged by the company’s continued cost reduction initiatives while pursuing strategic alternatives with tighter capital expenditures and operating expenses. During the quarter operating expenses declined 19.3%, primarily due to lower R&D expenses which fell 16.8%, and lower SG&A expenses which declined 23.4% year over year.

Micron’s memory and image-sensing chips are used by International Business Machines (IBM - Analyst Report) in PCs and other gadgets. Moreover, Apple (AAPL - Analyst Report) is a strategic NAND customer for iPod consumer devices. Thus we believe that Micron will continue to witness significant payback from the favorable memory demand/supply environment in the fiscal 2010.

Micron said that sales of its DRAM memory chips rose 28% sequentially in the quarter due to a 19% increase in sales volume and an 8% rise in average selling prices. Moreover, sales of higher-end NAND flash memory increased 10% sequentially due to a 23% increase in sales volume offset by an 11% drop in ASPs. The lower NAND ASP reflected reduced manufacturing costs for chips sold to Intel (INTC - Analyst Report).

The company’s gross margin on sales of memory products continued to improve from a negative 12% in the previous quarter to a positive 8% in the current quarter. Micron’s results validates that chip prices are in a recovery phase and demand is expected to improve further. Moreover, we believe that unit demand for memory chips will likely continue to grow due to the growing demand of dense DRAM configurations in servers and notebooks.

We are also encouraged by the company’s growing cash balance. Micron generated $357 million in cash flows from operations and ended the year with $1.5 billion in cash and investments. We expect the company to continue strengthening its free cash flow generation through reduced operating expenses and lower capital expenditure.
 
Earlier, Intel, Micron’s flash memory partner, raised its third-quarter guidance due to improving memory chip demand. Thus we raise our earnings forecasts for the next year on several chipmakers. Though semiconductor stock prices have risen, more upside is possible.

We have a Neutral rating on Micron. The company's shares rose more than 3% in after-hours trading and closed at $8.40 yesterday.