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Micron Technology Inc. (MU - Analyst Report) reported adjusted third quarter fiscal 2012 loss per share of 29 cents, wider than the Zacks Consensus Estimate of 19 cents loss per share. Shares of Micron lost 5 cents in the after-hour trade. The miss was mostly due to flat growth of average selling price (ASP) and higher costs.

Revenue

Micron reported revenues of $2.2 billion, up 1.5% year over year and 8.1% sequentially. After witnessing revenue decline for the past four quarters, the sequential improvement this quarter was mostly due to higher DRAM shipments and favorable ASP. The company also witnessed a 40.0% sequential improvement in the shipment of NAND Flash products that was more than offset by lower ASP. Contribution from NOR Flash product was encouraging.

Operating Results

The company's gross margin for the third quarter was 10.8%, down from 22.3% in the year-ago quarter. The decline was primarily due to rising costs and a significant drop in NAND ASP.

Selling, general and administrative expenses increased 3.3% year over year to $156.0 million. Research and development expenses grew 9.5% year over year to $231.0 million, mainly due to higher labor costs. The operating margin was (8.8%) as against 11.1% in the year-ago quarter. Opex growth moderated more than it was witnessed in the previous quarter.

Micron suffered a net loss of $320.0 million or 32 cents per share, compared to net income of $75.0 million or 7 cents in the year-ago quarter and a net loss of $282.0 million or 29 cents in the prior quarter. However, adjusting for gain or loss on disposition of property, plant and equipment, and gain or loss from changes in currency exchange rates, adjusted net loss per share was 29 cents.

Balance Sheet & Cash Flow

Micron ended the third quarter with cash and short-term investments of $2.33 billion, up from $2.09 billion in the previous quarter. Receivables were $1.33 billion, up from $1.24 billion in the previous quarter. Inventories decreased 9.0% from the prior quarter to $1.9 billion.

The company had $3.2 billion in long-term debt, significantly up from $2.2 billion in the prior quarter. Cash generated from operations was $686.0 million, compared with $574.0 million in the prior quarter.

Guidance

Micron did not provide any specific guidance for revenue or earnings. But the company expects NAND selling prices to decline modestly in the fourth quarter of 2012, while NAND bit growth to increase in the high single-digit range. DRAM cost per bit is expected to increase slightly. Micron also expects NOR revenue to be relatively flat sequentially.

SG&A expense in the fourth quarter is expected between $145 million and $155 million. R&D expense is expected to be between $225 million and $235 million.

Our Take

Micron’s third quarter results were disappointing as the net loss per share was wider than the Zacks Consensus Estimate. The quarter’s revenue was better than the year-ago level, but uncertainty looms over persistent declines in ASPs. Also, lackluster demand for desktop PCs will remain an overhang over the DRAM fundamentals. The lack of growth visibility has also been reflected in Micron’s fourth quarter guidance.

However, we remain encouraged by Micron’s pending Elpida buyout (a bankrupt Japanese chip maker) that could bring in a larger DRAM market share. Also, Apple Inc.’s (AAPL - Analyst Report) reliance on Elpida would be a win-win situation for Micron, going forward.

On the other hand, we believe that it won’t be easy for Micron to capture share from SanDisk Corp. (SNDK - Analyst Report), a key player in the NAND zone. However, the renewal of operations in Thailand may help the company going forward.

Micron Technology has a Zacks #3 Rank, implying a short-term Hold recommendation.

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