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Micron (MU) Posts Q3 Loss, Provides Weak View, Stock Falls

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Shares of Micron Technology Inc. (MU - Free Report) went down more than 9% in after-hours trading yesterday, after the company reported mixed third-quarter fiscal 2016 results. Moreover, year-over-year comparisons were unfavourable on both the counts. Also, a tepid guidance for the forthcoming quarter impacted the share price.

Micron Technology Inc. (MU - Free Report) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

 

Adjusted loss per share (excluding the impact of one-time items) of 8 cents was narrower than the Zacks Consensus Estimate of a loss of 11 cents. However, in the year-ago quarter, the company had reported adjusted earnings of 54 cents per share.

Quarter Details

Micron’s revenues in the quarter decreased 24.8% on a year-over-year basis to $2.898 billion and lagged the Zacks Consensus Estimate of $2.949 billion. The year-year-over decline was primarily due to softness in the PC segment. Also, pricing pressure in client SSD and lower-than-expected sales of trade Non-Volatile products impacted the top line.

DRAM products accounted for 60% of total revenue during the quarter. DRAM revenue increased 9% on a sequential basis.

Coming to the Storage Business Unit (SBU), revenues of $719 million were down 20.2% sequentially.

Revenues from the Mobile Business Unit (MBU) increased 11.5% sequentially to $561 million primarily due to continuous ramp of 20-nanometer LPDDR3 and LPDDR4 products.

The computing and networking business (CNBU) saw a 4% sequential increase in revenues and came in at $1.09 billion, primarily due to an increase in 20-nanometer shipment growth across all segments. 

Revenues from embedded business came in at $487 million, up 6% from the last quarter, primarily due to strength in the automotive and consumer segments.

Micron’s gross profit was down 58.6% on a year-over-year basis to $498 million. Gross margin came in at 17.2% compared with 31.2% a year ago, primarily due to a lower revenue base.

Selling, general and administrative (SG&A) expenses decreased 12.4% year over year to $148 million. Research and development (R&D) expenses were $382 million, down 5.9% on a year-over-year basis. Operating expenses, as a percentage of revenues, increased 330 basis points on a year-over-year basis to 18.1%.

Micron reported operating loss of $27 million. The company reported operating profit of $631 million in the year-ago quarter.

The company incurred non-GAAP net loss (excluding the impact of one-time items) of $79 million or 8 cents compared with net income of $620 million or 54 cents reported in the year-ago period.

On a GAAP basis, the company suffered net loss of $215 million. In the year-ago quarter, Micron had reported net income of $491 million.

The company exited fiscal third quarter with cash and short-term investments of $4.04 billion compared with $4.98 billion in the previous quarter. Receivables were $2.07 billion compared with $1.98 billion last quarter.  Micron’s long-term debt increased to $8.92 billion from $6.49 billion in the prior quarter.

During the first nine months of fiscal 2016, the company generated cash of $2.272 billion compared with $1.88 billion generated during the same period last year. Capital expenditure was $1.69 billion in the third quarter of fiscal 2016.

Guidance

For the fourth quarter of fiscal 2016, Micron expects revenues in the range of $2.9 billion to $3.2 billion. The Zacks Consensus Estimate is pegged at $3.2 billion. The company expects loss per share in the range of 16 cents to 24 cents. The Zacks Consensus Estimate is pegged at earnings of 2 cents.

Management expects gross margin in the range of 15.5% to 18% in fiscal fourth quarter. Operating expenses are expected in the range of $580 million to $630 million and operating loss is likely to be within 55 million to $135 million.

Our Take

Micron reported mixed third quarter fiscal 2016 results. While the top line missed the Zacks Consensus Estimate, the bottom line fared better than the same. The year-over-year comparisons on both the counts were unfavourable. The fourth quarter guidance was also tepid.

However, the acquisitions of Elpida and Rexchip (now known as Micron Memory Japan, Inc. and Micron Memory Taiwan Co., Ltd., respectively) will increase Micron’s traction in the memory market.

Micron is positive about the product launches and growing demand, particularly SSD products. The company has been constantly innovating in memory technologies, spanning DRAM, NAND and NOR Flash memory solutions, which are being widely used in the latest mobile computing devices as well as in consumer, networking and embedded products.

However, Western Digital Corporation (WDC - Free Report) , a key player in the NAND space, could increase the competition in the industry.

Currently, Micron has a Zacks Rank #3 (Hold). Better-ranked stocks worth considering in the technology sector include Insperity, Inc. (NSP - Free Report) and Amazon.com, Inc. (AMZN - Free Report) . While Insperity sports a Zacks Rank #1 (Strong Buy), Amazon carries a Zacks Rank #2 (Buy).

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