(MU) Micron Technology Misses Third Quarter Expectations – Shares Tumble

Micron Technology Inc. (MU) reported adjusted third quarter 2011 earnings per share of 0 cents, which missed the Zacks Consensus Estimate of 17 cents.

The miss was largely due to subdued PC sales, which adversely affected the demand for memory chips. Management stated that Micron’s results were somewhat affected by stalled production in Japan due to the earthquake. But management also stated that the company is no longer facing any supply interruption.

Revenue

Micron reported revenue of $2.14 billion, down 6.5% year over year and 5.2% sequentially. The reported revenue was far below the Zacks Consensus Estimate of $2.54 billion.

Revenue from the sales of DRAM products fell 7.0% from the previous quarter as a result of a decrease in sales volume due to lower PC sales. Revenue from sales of NAND Flash products was 5.0% lower than the previous quarter due to a 5.0% decline in average selling prices (ASPs), which is due to oversupply in NAND.

Operating Results

The company’s gross margin for the third quarter was 22.3%, up from 19.3% in the previous quarter but down from 37.1% in the year-ago quarter. The decline was primarily due to lower ASPs, partially offset by decreases in manufacturing costs.

Selling, general and administrative expenses plunged 20.5% year over year to $151.0 million. Research and development expenses increased 48.6% year over year to $211.0 million. The operating margin fell 1,720 basis points year over year to 5.4%.

Net income attributable to Micron was $75.0 million or 7 cents per share, compared to $939.0 million or 92 cents in the year-ago quarter. Excluding the effect of the other income relate to gain on sale of facility, restructuring gains and gain on sale of property, plant and equipment, equity in net income (losses) and noncontrolling interests, adjusted net income came at $0.0 million or 0 cents per share, compared to $518.0 million or 49 cents in the prior-year quarter.

Balance Sheet & Cash Flow

Micron ended the third quarter with cash and short-term investments of $2.40 billion, up from $2.18 billion in the previous quarter. Receivables were $1.50 billion, compared with $1.39 billion in the previous quarter. Inventories increased 5.7% from the prior quarter to $2.1 billion. The company had $1.57 billion in long-term debt, up from $1.32 billion in the prior quarter.

Cash generated from operations was $589.0 million, compared to $809.0 million in the prior quarter. Capital expenditure decreased $306.0 million from the prior quarter to $534.0 million.

Our Take

Micron’s third quarter results were disappointing as both top and bottom lines badly missed the Zacks Consensus Estimates. The quarter even saw declines in ASPs.

However, some analysts believe that ongoing cost reduction discipline could mitigate the adverse effect of ASP declines to some extent, going forward. Moreover, Micron’s shift in focus from traditional PC DRAM to specialty DRAM could also boost its fundamentals. Analysts are also positive about favorable DRAM pricing in the near term.

Competition from SanDisk Corp. (SNDK), the legal tussle with Rambus Inc. (RMBS) and weakening PC sales are concerns.

Micron Technology has a Zacks #3 Rank, implying a short-term Hold recommendation.

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