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Micron Technology Inc. (MU - Analyst Report) is scheduled to announce its first-quarter fiscal 2013 results after markets close on December 20, 2012. In the run up to the earnings release, we notice no movements in estimates.

Fourth Quarter Overview

Micron delivered fourth-quarter 2012 adjusted loss per share of 24 cents, wider than the Zacks Consensus Estimate of a loss of 22 cents per share. The dismal performance was due to lackluster average selling prices (ASP) per unit and macro uncertainty.

The company’s reported revenue dropped 8.3% year over year to $1.96 billion. The decline was mainly due to lower DRAM and NAND shipment. Contribution from the NOR Flash product was modest.

Rising costs and a significant drop in DRAM ASP resulted in a decline in gross margin. Operating costs improved moderately as selling and general expenses reduced. Operating loss margin in the quarter was 7.1% compared with operating loss margin of 2.4% in the year ago period.

Guidance

Micron did not provide any specific guidance for revenue or earnings. However, the company asserted that it will remain focused on cost cutting initiatives, new product introductions and manufacturing efficiencies. The company also noted that it expects more NAND consumption based on the growing demand for smartphones and tablets.

In addition, Micron expects to benefit from the necessary supply adjustments as some NAND suppliers stabilize the supply/demand situation.

Agreement of Analysts

The analysts expect that the emerging demand for ultrabooks, smartphones and tablets will increase the demand for Micron’s NAND business. DRAM is also gaining popularity in both the low-end and high-end smartphones. Increasing adoption of the high-end smartphones and tablets has consequently increased the demand for mobile DRAM.

Analysts also expect that the expansion of NAND in Singapore will benefit the flash market pricing from fiscal 2013 onwards. Also a potential boost in the PC market due to Microsoft Corp.’s (MSFT - Analyst Report) Windows 8 operating system could boost the demand for DRAM. Analysts expect the demand for SSD to rise in the coming quarters, which will eventually contribute to Micron’s success.

However, the pricing of the DRAM and NAND chips and their respective end-market demand remain the key concerns for the analysts. A lackluster PC market will continually pressurize Micron’s fundamentals.

All the 24 estimates for the first quarter 2013 and fiscal 2013 were maintained in the last 30 days. However, out of the 19 estimates for fiscal 2014, only one estimate moved upward in the last 30 days.

Magnitude of Estimate Revisions

The Zacks Consensus Estimate for the first quarter and fiscal 2013 remained unchanged at a loss of 19 cents per share and a loss of 26 cents per share, respectively, over the past 30 days. However, the estimate for the first quarter and fiscal 2013 dropped 14 cents and 44 cents, respectively, in the past 90 days. This significant drop, since the fourth quarter earnings, reflects concerns relating to DRAM pricing.

Recommendation

We believe that pricing would act as a deciding factor for Micron’s first quarter. Also, lackluster demand for desktop PCs will remain an overhang over the DRAM fundamentals.

However, we remain encouraged by Micron’s pending Elpida buyout (a bankrupt Japanese chipmaker) 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 will not be easy for Micron to capture market share from SanDisk Corp. (SNDK - Analyst Report), a key player in the NAND zone.

Currently, Micron has a Zacks #3 Rank (Hold).

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