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Micron (MU) Q2 Earnings Top Estimates, Q3 Outlook Upbeat

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Micron Technology (MU - Free Report) reported stellar results for second-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 second-quarter non-GAAP earnings per share of 98 cents beat the Zacks Consensus Estimate of 95 cents. Moreover, non-GAAP earnings registered year-over-year growth of a whopping 117.8%. Quarterly revenues of $6.24 billion outpaced the consensus mark of $6.23 billion and increased 30% from the year-ago quarter’s $4.80 billion.

Revenue Details

DRAM revenues of $4.44 billion, accounting for 71% of total revenues in the fiscal second quarter, jumped 44% year over year and 10% sequentially. Bit shipments grew in the high-single-digit percentage range sequentially, while ASPs were up slightly on a quarter-on-quarter basis.

NAND revenues of $1.65 billion, representing 26% of the total top line, were up 9% on a year-over-year basis and 5% quarter on quarter. While NAND ASP decreased in the low-single-digit percentage band, bit shipments grew in the high-single-digit percentage range sequentially.

Business-unit wise, revenues of the computing and networking business (CNBU) unit jumped 34% from the year-ago quarter and 4% sequentially to $2.64 billion. The company noted that revenue growth was driven by increased pricing and volume across data center, networking and client.

Revenues of $1.81 billion from the Mobile Business Unit (MBU) climbed 44% on a year-over-year basis and 21% sequentially. This improvement was mainly backed by recovery in the mobile market from the impact of the COVID-19 pandemic and momentum in 5G-enabled devices.

The Embedded Business Unit (EBU) revenues logged $935 million, up 34% from the year-ago period and 16% from the previous quarter, primarily driven by record auto revenues and strong industrial demand. 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 $850 million, down 2% year on year and 7% sequentially. The company noted that SSD revenues and component revenues, both declined sequentially.

Margins

Micron’s non-GAAP gross profit of $2.05 billion increased 46.9% year on year and 15.1% sequentially. Non-GAAP gross margin improved to 32.9% from 30.9% in the prior quarter and 29.1% in the year-ago quarter chiefly on increase in DRAM price and decline in costs.

Micron’s non-GAAP operating income of $1.26 billion surged 131.9% year over year and 29.2% sequentially. Non-GAAP operating margin expanded to 20.2% from the year-ago quarter’s 11.3% and the previous quarter’s 16.9%, primarily on higher gross margin and lower operating expenses.

Non-GAAP operating expenses declined 6.9% year on year and 1.7% sequentially to $797 million. The company noted that operating expenses were lower than expected. Nonetheless, it continues to forecast rise in operating expenses during the second half of fiscal 2021 due to higher prequalification and labor expenses.

Balance Sheet and Cash Flow

The company exited the reported quarter with cash, marketable investments, and restricted cash of $8.6 billion compared with the $8.36 billion recorded at the end of the prior quarter.

Micron’s long-term debt as of Mar 4, 2020 was $6.6 billion compared with the $6.36 billion witnessed at the end of the fiscal first quarter.

The company generated operating cash flow of $3.1 billion during the fiscal second quarter and free cash flow of $174 million.

Q3 Outlook

The company anticipates revenues of $7.1 billion (+/-$200 million) for the fiscal third quarter. The Zacks Consensus Estimate for fiscal third-quarter revenues is pegged at $6.68 billion.

For the fiscal third quarter, Micron expects non-GAAP gross margin of 41.5% (+/-100 bps). Operating expenses on a non-GAAP basis are likely to be $875 million (+/-$25 million).

Adjusted earnings per share are anticipated to be $1.62 (+/-7 cents). The consensus mark is pegged at $1.23 per share.

During the fiscal second-quarter conference call, the company noted that it continues to forecast rise in operating expenses during the second half of fiscal 2021 due to higher prequalification and labor expenses.

Notably, during its fiscal first-quarter conference call too, Micron had stated that it projects operating expenses to flare up in the second half of fiscal 2021. The previously-delayed fiscal 2021 salary hikes which will take effect at the beginning of the fiscal third quarter are expected to trigger this upswing in expenses.

During the earnings conference call, Micron also stated that it 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 flare up approximately 10% during the fiscal third quarter.

Zacks Rank & Other Key Picks

Micron currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Other top-ranked stocks in the broader technology sector include Dropbox (DBX - Free Report) , Facebook (FB - Free Report) and NVIDIA (NVDA - Free Report) , all carrying a Zacks Rank #2 (Buy) at present.

The long-term earnings growth rate for Dropbox, Facebook and NVIDIA is currently pegged at 40.9%, 19.2%, and 12.6%, respectively.

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