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Micron (MU) Q1 Earnings Top Estimates, Q2 Guidance Impressive

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Micron Technology (MU - Free Report) reported stellar results for first-quarter fiscal 2021, wherein the top and bottom lines surpassed the respective Zacks Consensus Estimate and marked solid year-over-year improvements as well.

The company’s fiscal first-quarter non-GAAP earnings per share of 78 cents beat the Zacks Consensus Estimate. Moreover, non-GAAP earnings registered year-over-year growth of 62.5%. Quarterly revenues of $5.77 billion outpaced the consensus mark of $5.73 billion and increased 12.2% from the year-ago quarter’s $5.14 billion.

Revenue Details

DRAM revenues of $4.06 billion, accounting for 70% of total revenues in the fiscal firstquarter, grew 17% year over year but declined 7% sequentially. Bit shipments fell in the low-single-digit percentage range sequentially, while ASPs were down in the mid-single-digit percentage range.

NAND revenues of $1.57 billion, representing 27% of the total top line, were up 11% on a year-over-year basis and 3% quarter on quarter. While NAND ASP decreased in the low-teens percentage band, bit shipments grew in the high-teens percentage range sequentially.

Business-unit wise, revenues of the computing and networking business (CNBU) unit jumped 29% from the year-ago quarter but fell 16% sequentially to $2.56 billion. This sequential decline was mainly due to the strong quarter-on-quarter comparison in the data-center end-market, prevailing weakness in the enterprise category and loss of extra week in the reported quarter.

Revenues of $1.50 billion from the Mobile Business Unit (MBU) climbed 3% on a year-over-year basis as well as sequentially. The improvement was mainly driven by recovery in the mobile market from the impact of the COVID-19 pandemic and momentum in 5G-enabled devices. The company noted that better-than-expected business transition from Huawei to other mobile customers also contributed to the segment’s improved performance during the fiscal first quarter.

Notably, during its fourth-quarter fiscal 2020 conference call, Micron had stated that it has not obtained license from the U.S. government to sell its chips to China’s Huawei Technologies. Therefore, the memory chip maker had expected the shipment ban to erode its sales in the first and second quarters of fiscal 2021. Markedly, chip sales to Huawei had accounted for nearly 10% of the company’s fourth-quarter fiscal 2020 total revenues.

The Embedded Business Unit (EBU) revenues logged $809 million, up 10% from the year-ago period and 24% from the previous quarter, primarily driven by record auto revenues. The company noted that the auto industry demand recovered from the pandemic-related shutdowns.

Revenues from the Storage Business Unit (SBU), comprising SSD NAND components, totaled $911million, down 6% year on year and flat sequentially. Remarkably, revenues from the 3D XPoint business are now reported under the CNBU segment. Excluding 3D XPoint’s revenues from first-quarter fiscal 2020, SBU revenues would have marked a 14% year-over-year improvement.

Margins

Micron’s non-GAAP gross profit of $1.78 billion increased 27% year on year but declined 15.5% sequentially. Non-GAAP gross margin improved from the year-ago quarter’s 27% to 31%. However, gross margin contracted 400 basis points (bps) sequentially on pricing declines and higher mix of low-margin NAND products.

Micron’s non-GAAP operating income of $973 million surged 63.8% from the year-ago quarter’s $594 million. Non-GAAP operating margin expanded from 12% to 17%, year on year. Nonetheless, non-GAAP operating profit and margin shrunk 25.3% and 400 bps, respectively, quarter on quarter.

Balance Sheet and Cash Flow

The company exited the reported quarter with cash, marketable investments, and restricted cash of $8.36 billion compared with the $9.26 billion recorded at the end of the prior quarter.

Micron’s long-term debt as of Dec 3, 2020 was $6.36 billion compared with $6.37 billion at the end of fiscal 2020.

The company generated operating cash flow of $1.97 billion during the fiscal first quarter and free cash flow of $816 million.

Q2 Outlook

The company anticipates revenues of $5.8 billion (+/-$200 million) for the fiscal second quarter. The Zacks Consensus Estimate for fiscal second-quarter revenues is pegged at $5.52 billion.

For the fiscal second quarter, Micron expects non-GAAP gross margin of 31% (+/-100 bps). Operating expenses on a non-GAAP basis are likely to be $825 million (+/-$25 million).

Adjusted earnings per share are anticipated to be 75 cents (+/-7 cents). The consensus mark is pegged at 63 cents.

During its fiscal first-quarter conference call, Micron stated that it expects operating expenses to flare up in the second half of fiscal 2021. This upswing would be due to the previously-delayed fiscal 2021 salary hikes which would take effect at the beginning of the fiscal third quarter.

The company also intends to incur additional pre-qualification related expenses during the second half of the fiscal year, which will further inflate operating expenses. Therefore, Micron expects operating expenses to be up approximately 10% in the fiscal third quarter.

Zacks Rank & Other Key Picks

Micron currently sports a Zacks Rank #1 (Strong Buy).

Other top-ranked stocks in the broader technology sector include Teradata Corporation (TDC - Free Report) , Dell Technologies (DELL - Free Report) and NetApp (NTAP - Free Report) , flaunting a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Teradata, Dell and NetApp is currently pegged at 16.1%, 12%, and 11.9%, respectively.

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