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Micron Technology Inc. (MU - Analyst Report) reported adjusted first quarter fiscal 2013 loss per share of 27 cents, wider than the Zacks Consensus Estimate of 19 cents loss per share. The straight six quarters of loss was mostly due to lower average selling price (ASP), sales volumes, manufacturing issues, lackluster PC demand and macro uncertainty.

Revenue

Micron reported revenues of $1.83 billion, down 12.2% year over year. The quarter’s revenue came well below the Zacks Consensus Estimate of $2.0 billion. The decline was mainly due to lower DRAM and NAND shipment. DRAM prices continued to fall while NAND ASP improved a bit. Contribution from NOR Flash product was modest.

Slowing PC sales resulted in lower demand for DRAM chips while lingering macro uncertainty put pressure on sales of smartphones and tablets, which in turn pressurizing NAND chip demand.

Management also stated that certain manufacturing related issues also took a toll on first quarter results but asserted that the issues have been taken care of.

Operating Results

The company's gross margin for the first quarter was 11.8%, down from 14.6% in the year-ago quarter. The decline was primarily due to DRAM pricing.

Selling, general and administrative (SG&A) expenses decreased 21.2% year over year to $119.0 million. The decline was mainly attributable to lower legal and personnel costs. Research and development (R&D) expenses declined 2.6% year over year to $217.0 million. Operating margin was (8.6%) versus (3.9%) in the year-ago quarter.

Micron suffered a net loss of $275.0 million or 27 cents per share compared with a loss of $187.0 million or 19 cents in the year-ago quarter.

Balance Sheet & Cash Flow

Micron ended the first quarter with cash and short-term investments of $2.22 billion, down from $2.56 billion in the previous quarter. Receivables were $1.14 billion, down from $1.29 billion in the previous quarter. Inventories increased 1.0% from the prior quarter to $1.83 billion.

The company had $3.44 billion in long-term debt, up from $3.26 billion in the prior quarter. Cash generated from operations was $236.0 million, compared with $450.0 million in the prior quarter.

Guidance

Micron did not provide any specific guidance for revenue or earnings. But the company asserted that it will remain focused on cost cutting initiatives, new product introductions and manufacturing efficiencies. The company also said that it will prefer to remain cautious on the memory market for the near term, while for the long term it believes that industry demand/supply metric will be balanced as no new wafer capacity additions will take place.

Apart from this, management expects SG&A expense in the second quarter of 2013 to be between $135.0 million and $145.0 million. Research and development expense is expected to be between $220.0 million and $230.0 million.

Our Take

Micron’s first quarter results were disappointing as the net loss per share was wider than the Zacks Consensus Estimate. The quarter’s revenue also lagged our estimate. Lackluster demand for desktop PCs will remain an overhang over the DRAM fundamentals.

Micron recently received an approval from the Japan Fair Trade Commission regarding its Elpida buyout. But the company still awaits approval from Elpida’s creditors, the Tokyo District Court, as well as regulatory bodies in other countries to close the deal. The company expects to close the deal by first half of 2013.

We remain encouraged by Micron’s 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 won’t be easy for Micron to capture share from SanDisk Corp. (SNDK - Analyst Report), a key player in the NAND zone. However, with support from Apple, its prime NAND customer, situation could be in Micron’s favor going forward.

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

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