Micron Technology Inc.
If Intel/NVIDIA will eventually power the future Terminators, Micron will likely provide the memory chips. Micron manufactures DRAM and NAND flash chips for a wide range of products and applications. The company in the past few years had been playing catch-up to peers in terms of technology and cost per bit and in many cases they have largely closed the gap, their most recent cycle was significantly more profitable than previous cycles. Micron and the industry were previously highly-correlated with the PC cycle but in recent years their business has diversified to include smartphones, televisions, automobiles, datacentres, and various products that historically did not have these chips. The company has also been combining DRAM and NAND products into “higher-valued solutions” which have higher ASPs which are somewhat less sensitive to commoditized price swings although the company does not disclose the level or trends of these specific products. Many investors interpreted comments from Micron’s CEO to conclude they no longer exhibited cyclicality when he stated their business is different than when they were tied to the PC cycle. I interpreted those statements that they will still face cyclicality but also due to secular growth they’d likely experience higher highs and higher lows and so far this has played out. Looking at the 3 quarters so far in this trough, 2Q20 revenues were 60% higher than the prior trough of 3Q16, GMs were 29.1% vs 18.1%, they were profitable and generated positive FCF compared to generating a loss and being FCF negative, and they’re net cash compared to being net debt. The 3 quarters so far in this trough (4Q19-2Q20) have all had positive EPS and cumulatively add to $1.49/share compared to -$0.12 per share for the 3 quarters of 2Q16-4Q16. Micron’s average annualized EPS from trough-trough was $5.93, many investors struggle to comprehend P/E ratios at the peak or the trough but many fail to look at the average through the cycle. As this downcycle unfolded with excess supply and inventories, prices came down while technology continues to advance, excess inventories ultimately get consumed, and product manufacturers eventually purchase higher capacity products which are faster than prior generations.
Ests: 1Q21 2Q21 FY21 FY22
Revs 5.7b 5.5 24.4b 30.5b
EPS 0.71 0.63 3.87 7.31
P=79.11, net cash=1.47/sh, excess NWC = 3.84sh, TTM EPS=3.16, P/E=25X, FY21 P/E=20X, FY22 P/E=11X
1Q21 .78 vs .48 +62.5%, est .71 up from .69 which then went down to .47
Jan 7, 2021, P=79.11, TTM EPS=3.16, P/E=25X, FY21 P/E=20X, FY22 P/E=11X
Revs +12.2% to 5.7bn, -4.7% q/q, GM 30.9% vs 27.3%, OM 16.9% vs 15.8%
CFO 1.97bn vs 2.01bn, CapEx 2.78bn
DRAM 70% of Revs, +17%, -7% q/q, bit shipments – LSD q/q, ASP -MSD q/q
NAND 27% of Revs, +11%, +3% q/q, bit shipments +high-teens q/q, ASP -low-teens Q/Q
CNBU +29% to 2.5bn, MBU +3% to 1.5bn, SBU -6% to 911m, EBU +10% to 809m
Mgmt excited about DRAM industry fundamentals, for the first time they are leading in DRAM and NAND technology
Better than expected transition from Huawei to other mobile customers
Industry Outlook: DRAM CY20 industy bit demand +20%, CY21 industry bit demand +high-teens, supply<demand, LT bit demand CAGR mid-to-high teens
Industry Outlook NAND: CY20 bit demand +mid-20% range, CY21 Industry bit demand ~+30%, supply potentially higher, LT bit demand CAGR +30%
Micron Outlook: DRAM and NAND supply growth below industry, DRAM costs -MSD%, NAND costs -low-to-mid teens%
2Q Guidance: Revs 5.8bn +/- 200m (est 5.5bn), GM 31%, EPS 0.75 +/- .07, est .63, impacted by Dec 3rdpower outage and Dec 10th earthquake off coast of Taiwan, impacted 2Q DRAM supply and cost. Expect FY21 CapEx ~9bn, expect “healthy” FCF in 2H21.
Changing inventory reporting to FIFO from Avg Cost, in line with industry, no change to non-GAAP results but expect GAAP charge to lower cost of inventory
Mid Quarter Update – Dec 1, 2020
Raised Guidance, quarter closes on Dec 3rd.
Expects Revs 5.70-5.75bn (previously 5-5.4bn), GM 29.5%-30.5%, adj EPS .69-.73 (previously .40-.54)
Saw strength pretty much across the board except enterprise remained weak, volume and pricing in DRAM and NAND were better than their expectations
2Q is seasonally weak quarter, beyond 2Q mgmt. expects continued strength in DRAM due to industry supply but “more importantly, all the demand drivers”
Mgmt reiterated concerns industry NAND could be oversupplied in FY21 if further actions aren’t taken
4Q underutilization charges were ~135m, should get down to about $100m by 4Q21, maybe another 1-2 years to get down to 0
4Q20 1.08 vs .56 +93%, est .99 up from .81
Sep 29, 2020, P=50.71, TTM EPS=2.83, P/E=18X, FY21 P/E=13X
Revs +24% to 6.06bn, +11% q/q, GM 34.9% vs 30.6%, OM 21.5% vs 14.3%
4Q20 was 14 week quarter vs typical 13 week.
DRAM 72% of revs, +22% q/q and +29% y/y, bit shipments +mid-20% q/q, ASPs down LSD% q/q
NAND 25% of revs, -8% q/q, +27% y/y, bit shipments flat q/q, ASPs down HSD% q/q
CNBU +36% q/q, +59% y/y to 3bn, MBU -4% q/q, +4% y/y to 1.46bn, SBU -10% q/q, +8% y/y to 913m, EBU -3% q/q, -7% y/y to 654m
FCF 111m vs 309m, FY FCF 361m vs 4234, net cash=2.6bn
Hig-Value solutions hit 80% of NAND bits in 4Q, their FY21 target.
Micron Outlook: DRAM and NAND CY21 bit supply growth below industry demand growth,
Expect Industry DRAM discipline to improve market conditions through FY21, NAND industry capex trends could put industry profitability at risk
1Q20 Guidance: Revs 5.2bn +/- 200m (+1% y/y, -14% q/q, est 5.5bn), EPS .47 +/- .07, vs .48, est .69, FY21 CapEx ~9bn vs 7.9bn in FY20, (NAND higher y/y, DRAM flat, significantly lower than pre-COVID expectations, not increasing wafer starts, spending heavier in 1H21 driving negative FCF, expect healthy FCF in 2H)
1Q weakness due to Enterprise demand weakened as Pendemic wears on, some high channel inventories, Huawei restrictions, mgmt. expects to be able to replace Huawei hole by end of 2Q?, ASP weakness and ramp costs for technology transition.
3Q20 .82 vs .88 -7%, est .77 up from .53
June 29, 2020, P=49.15, TTM EPS=2.31, P/E=21X, FY21 P/E=11X
Reminder last year’s reported adj EPS 1.05 incl negative tax rate
Revs +13.6% to 5.44bn, +13.4% q/q, GM 33.2% vs 39.3%, OM 18% vs 23.2%, OpInc -11.6% to 981m, GM improved q/q due to price and mix
DRAM 66% of Revs, +6% y/y and +16% q/q, bit shipments +10% q/q, ASPs +MSD% q/q. NAND 31% of Revs, +>50% y/y, +10% q/q, bit shipments +LSD% q/q, ASP +HSD% q/q
CNBU +7% y/y and +13% q/q, MBU +30% y/y and +21% q/q, SBU +25% y/y and +17% q/q, EBU -4% q/q and -3% q/q due to automotive
CFO 2.02bn bs 2.71bn
CapEx 1.9bn, flat qq/q, expect FY20 CapEx ~8bn, front-end Equipment CapEx to be down >40% y/y
>75% of NAND volume high-value solutions driven by record SSD (still small but growing share)
Huawei not listed as 10% customer
4Q20 Guidance: Revs 5.75-6.25bn (est 5.5bn), GM 35.5%, EPS 1.05 +/- 0.10 vs .56, est .81
Mgmt discussed changing trends due to pandemic, some weaker and some stronger. Expect data center to remain healthy, smartphone and consumer end-unit sales to continue to improve accelerating inventory consumption across the supply chain, new gaming consoles to drive stronger DRAM and NAND demand.
Mid Quarter Update – May 27, 2020
Raised Guidance: 3Q Revs 5.2-5.4bn, adj GM 33-34%, EPS .75-.80, raised above top end of previous range.
2Q20 .45 vs 1.71 -74%, est .37 down from .41 (low est .30)
Mar 25, 2020, P=42.50, TTM EPS=2.37, P/E=18X, FY21 P/E=8X
Revs -17.8% to 4.8bn, -6.6% q/q, GM 29.1% vs 50.2%, OM 11.3% vs 36.2%, OpInc -74%
DRAM 64% of revs, revs -11% q/q, -26% y/y, bit ships -10% q/q but +20% y/y, ASPs flat q/q
NAND 32% of revs, revs +6% q/q, +9% y/y, bit ships -lsd q/q but +20% y/y, ASPs +hsd q/q
CNBU -1% q/q, -17% to 2.38bn, MBU -14% q/q, -22% to 1.61bn, SBU -10% q/q, -15% to 1.02bn, EBU -5% q/q, -13% to 799m
Gross cash and investments 8bn, 2.6bn net. Also 2.67bn in excess non-cash WC.
3Q guidance: Revs 4.6-5.2bn (vs 4.79bn, est 4.9bn), EPS .55 +/- .15, vs .88, est .53 and low est .27
Mgmt sees near-term demand driven by datacenter due to remote working, gaming, and e-ecommerce, datacenter demand strong in all regions and leading to supply shortages, increased demand for notebooks, expect smartphone, consumer electronics, and auto demand below previous expectations for 2H2020 (not surprising)
Good execution in difficult environment, guidance is encouraging despite disruptions from COVID19, definitely supports notion that they are in the trough.
1Q20 .48 vs 2.97 -84%, est .47
Dec 18, 2019, P=53.04, TTM EPS=3.63, P/E=15X, FY20 P/E=22X, FY21 P/E=10X
Revs -35% to 5.14bn, +5.5% q/q, GM 27.3% vs 59.0%, OM 11.5% vs 49.1%
DRAM 67% of revs, +2% q/q and -41% y/y, bit shipments +10% q/q, +mid 20% y/y, ASPs -HSD% q/q
NAND 28% of revs, +18% q/q, -14% y/y, bit shipments +mid-teens q/q, +mid 30% y/y, ASP +LSD %q/q
CNBU +4% q/q and -45% to 1.98bn, MBU +4% q/q and -34% y/y to 1.46bn, SBU +14% q/q and -15% y/y to 968m, EBU +4% q/q and -21% y/y to 734m
Inventories 4.9bn down from 5.1bn in 4Q, CFO 2bn vs 4.8bn, FCF 79m vs 2.3bn
2Q Outlook: Revs 4.5-4.8bn est 4.8bn, GM 27%, EPS .29-.41 vs 1.71, est .41,
Mgmt calling 2Q cyclical bottom for their financial performance as industry supply/demand balance continues to improve, seasonally weakest quarter, cautious in near term due to CPU shortage. Will have NVMe SSDs in all segments in 2Q20 positioning them to gain share, saw strong demand from data centre customers in 1Q for SSDs.
Seeing shortages of high-quality, high-density DRAM, SSDs,
Next generating gaming consoles in CY20 will have SSDs for first time.
Expects high value solutions to grow from 50% of NAND bits in FY19 to >66% in FY20 and up to 80% in FY21, expected to improve profitability and reduce volatility in GMs.
Launched first 3DXP product, the X100, dramatically faster than any other SSD available, was showcased at Microsoft’s Ignite conference by the Azure team.
Closed acquisition of Intel’s stake in IMFT in October, right-sizing the Lehi fab and redeploying some equipment and employees to other sites.
Industry Outlook: DRAM CY19 bit demand growth ~20%, CY20 bit demand growth mid-teens with industry supply growth somewhat less than demand growth. NAND CY19 industry bit demand growth mid 40% range, CY20 industry bit demand growth high 20% to low 30% range, industry supply growth lower than industry demand growth.
Mgmt thinks some of the stronger DRAM demand at the end of CY19 could be inventory building in China and shifting from CY20.
Micron Outlook: DRAM CY19 bit supply less than industry growth of mid-teens, CY20 bit supply growth slightly above industry. NAND CY19 supply growth slightly below industry bit demand growth, CY20 bit supply growth meaningfully below industry supply growth, bit shipment growth close to industry bit demand growth due to inventory built for transition.
As previously stated, mgmt. expects minimal NAND cost reductions in FY20 due to replacement gate transition.
Huawei: applied for and received requested licenses to sell certain products they have been selling and are not subject to export administration regulations and Entity List restrictions in addition to new mobile and server products but due to qualifications, mgmt. does not expect material benefit from new mobile and server products for next couple of qtrs.
Bigger picture: MU’s average annualized EPS through the cycle was about $5.90 with this downcycle being much better than the previous downcycle (staying profitable and likely earning >$1 a share in cumulative EPS in the 3 trough quarters vs -0.12 in the 3 quarters in the prior trough. 2Q20 Revs at the midpoint will be ~60% higher than the previous trough with GMs 9% higher , FCF positive compared to -1.3bn, and the company is net cash vs net debt. I think referencing the stock peak in 2018 is a poor reference given the stock was at 5X earnings and the cycle wasn’t as long or as deep as many investors were fearing, setting up for a solid recovery which could surpass prior profitability and ending up with a less volatile business.
4Q19 .56 vs 3.53 -84% w 8.8% TR, est .49 down from .78, FY19 EPS 6.12 vs 11.95 -49%
Sept 26, 2019, P=48.60, TTM EPS=6.12, P/E=8X, FY20 P/E=18X
Revs -42% to 4.87bn, GM 30.6% vs 61.4%, OM 14.3% vs 52.6%, OpInc -84%, had $100m in underutilization charges in 3DXP, changing NAND equipment depreciation, to be ~80m lower in 1Q20
Inventories 5.2bn vs 4.9bn in 3Q
4Q CFO 2.23bn vs 5.16bn, CapEx 1.97bn, FY CFO 13.2bn vs 17.4bn, CapEx 9.11bn
DRAM 63% of Revs, +1% q/q, -48% y/y, bit shipments +~30% q/q and mid-teens y/y, ASPs down~20% q/q. NAND 31% of revs, +5$ q/q and -32% y/y, bit shipments + low-mid teens q/q, ASPs down upper-single digits q/q.
CNBU -8% q/q and -35% y/y to 1.9bn, MBU +20% q/q and -3% y/y to 1.41bn, SBU +4% q/q and -24% y/y to 848m, EBU +1% q/q and -10% y/y to 705m
Data center and graphics drove solid bit growth q/q as inventories were reduced significantly, PC grew as CPU shortages subsided, Auto grew y/y due to secular content increases
Sales to Huawei down q/q and meaningfully below levels prior to the ban, if unable to obtain licenses, sales to Huawei would fall further.
Began shipments of 1Z node DRAM, ¾ still on 1X, “meaningful” on 1Y.
Mgmt encouraged by signs of improving industry demand but mindful of near-term macro and trade uncertainties. DRAM demand bounced back as 1H19 issues dissipated, NAND demand elasticity driving robust demand growth.
1Q20 Outlook: Revs 5bn +/- 200m (est 4.8bn), GM 26.5%, PS .46 +/- .07 (est .48), FY20 CapEx 7-8bn, GM lower q/q due to mix of lower margin products, starting in 1Q for foreseeable future, will be incurring underutilization charges of $150m per quarter (roughly half non-cash) do to 3DXP (vs 100m in 4Q19), basically offset by lower depreciation due to change in NAND equipment useful life.
Industry Outlook: DRAM CY19 bit demand growth mid-teens, CY20 bit demand growth high-teens to 20% vs supply growth of mid-teens. NAND CY19 bit demand growth low-mid 40% range, vs supply growth of 30%, Industry margins at lowest in 10 years and mgmt. thinks the will start improving, CY20 bit demand growth high 20s to low 30s%, supply growth below somewhat demand with long-term bit demand growth low 30% CAGR.
Micron Outlook: DRAM CY19 bit supply growth slightly below industry demand, CY20 bit supply growth close to market demand, FY20 cost reductions high-single-digit % from FY19. NAND CY19 bit supply growth slightly above industry supply, CY20 bit supply growth significantly below the industry as they use their built-up inventory to support demand during transition. Minimal cost reductions in FY20, meaningful cost reductions in FY21.
JPM cut FY19 est to 5.64 and FY20 to 1.21 (prior to 3Q19 results)
3Q19 0.88 vs 3.15, -67%, est .83 down from 1.23
Reported EPS 1.05 but incl tax benefits, w 12% TR EPS is .88
June 25, 2019, P=32.68, TTM EPS=9.09, P/E=3.5X, FY20 P/E=7.6X
Revs -38.5% to 4.79bn (est 4.77bn), GM 39.3% vs 60.9%, OM 23.2% vs 51.5%, OpInc -72% to 1.1bn
DRAM 64% of revs, ASPs down 20% q/q, shipments flat q/q, NAND ASPs down mid-teens q/q, shipments down mid-single-digits q/q
CNBU -48% to 2.08bn, MBU -33% to 1.17bn, SBU -29% to 813m, EBU -22% to 700m
High-value solutions now >2/3 of NAND revs, QLC (Quad Level Cell) SSD bit shipments +75% q/q as NVMe SSD more than doubled q/q
Mobile impacted by trade restrictions, growth to come from 5G, foldable phones, more advanced cameras. MU mobile DRAM leads low power.
Most cloud customers approaching normal levels of inventories, Cloud DRAM shipments grew q/q, expect strong q/q growth in 4Q,
Enterprise customers taking longer to normalize than they previously expected.
PC DRAM shipments grew q/q as CPU shortages started to improve.
Repurchased 157m in stock, 2.66bn YTD, CFO 2.71bn vs 4.26, net cash=3.02bn, additional NWC 4.7bn
Inventoriesrose 525m q/q to 4.9bn, carrying higher levels of NAND inventory to meet demand growth as transition to replacement gate doesn’t drive bit growth, also carrying higher DRAM inventory as industry seeks supply/demand rebalance, expect lower inventories by end of CY19, don’t see obsolescence risk.
Huaweiwas 13% of 3Q, 2Q, and 1Q revs, immediately halted all sales after order then after a review, started shipping some products which are not subject to restrictions.
Industry Outlook: Expect healthy y/y bit demand growth in DRAM in 2H19, expect CY19 NAND bit demand growth in mid 30s, industry supply in high 30s, reducing NAND wafer starts by 10% vs 5% previously announced, seeing signs of demand stimulation.
Expect strong growth in DRAM shipments for cloud, graphics, and PC markets in 4Q followed by more normal bit growth in 1Q.
4Q19 Guidance: Revs 4.5bn +/- 200m (est 4.9bn), GM 29%, EPS 0.45 +/- .07, (est 0.78, lowest estimate .17), confident that DRAM will return to healthy y/y bit demand growth in 2H19, seeing NAND bit demand increasing in most markets due to price elasticity.
Met guidance despite “steeper than expected price declines” due to “improved competitive position and strong execution”, “seeing early signs of demand improvement”, planning to cut capex in FY20 to be meaningfully lower than FY19 to help improve industry supply/demand (~2bn of FY19 Capex is facilities, cleanroom).
Not clear if 4Q19 guidance is the trough and while earnings have fallen more than 50% from the peak, stock responding favourably as it’s not far above its recent lows. Signs of improving demand and customer inventories could be positive, restrictions on Huawei muddy the waters.
2Q19 1.71 vs 2.82, -39%, est 1.67 down from 2.44
Mar 20, 2019, P=40.13, TTM EPS 11.36, P/E=3.5X, FY20 P/E=7X
Revs -20.5% to 5.84bn, GM 50.2% vs 58.4%, OM 36.2% vs 49.4%
DRAM 64% of Revs, -28% y/y and -30% q/q, ASPs down low 20% q/q, shipments down low-double digits q/q
NAND 30% of Revs, -2% y/y and -18% q/q, ASPs down mid-20% q/q, shipments up high single-digit q/q, High-value solutions were 2/3 of Revs in 1H
CNBU -34% q/q to 2.38bn, Mobile -27% to 1.61bn, Storage -11% to 1.02bn, Embedded -14% to 799m
Repurchased 21m shares for 702m, inventories +514m q/q to 4.4bn (1.5 quarters of inventory at 2Q19 rate), expect Inventories up again in 3Q, should help service “heavier” orders in 4Q and reduce inventories. Redeemed 2043 convert in 3Q reducing diluted share count by 9m.
Expects DRAM bit shipments to start increasing in 3Q19 and strengthening in 4Q19, “robust” DRAM bit demand growth in FY20. CY19 bit demand growth in low-mid teens with industry supply up mid-high teens. Expects 3Q NAND shipments modest decline q/q then resume growth in 4Q, CY19 NAND bit demand growth in mid 30s with industry supply growth in high 30s. Reducing wafer starts in both DRAM and NAND by 5%, pricing has weakened more than they expected since last quarter but cost reductions put GM in their guided range, demand outlook has moderated, seeing improvement in some customers’ inventory positions, expect inventory adjustments at customers to be largely complete by mid CY19 and growth resume in 2H CY19
Underutilization charges being booked in as realized, not baked into inventory, resulting in attractive inventory costs in future quarters (while hurting current margins).
Guidance: 3Q Revs 4.8bn +/- 200m (-38% y/y, est 5.33bn), GM 37-40%, EPS 0.85 (-73%, est 1.23), Lowered FY19 Capex to ~9bn vs prior guidance of 9-9.5bn, evaluating 2020 CapEx.
Guidance again below estimates but if 3Q is the EPS trough (unheard of for Micron whose trough has been negative EPS), $40 stock price would put the stock at 12X annualized 3Q EPS of $3.40 however resumption of growth would put earnings above that – still a big if to see if customers inventories do normalize in 3Q and end demand growth continuing/strengthening. Citi downgraded MU on expectation that pricing bottoms in 2H19 rather than 1H, MU mgmt. isn’t calling the pricing cycle, they are expecting growth in bit volumes (which may or may not happen).
1Q19 2.97 vs 2.45 +21%, est 2.96 down from 3.06
Dec 18, 2018, P=34.11, TTM EPS=12.47, P/E=2.7X, FY19 P/E=3.5X
Revs +16% to 7.91bn, GM 59% vs 55.4%, OM 49.1% vs 46.4%
Repurchased 42m shares for $1.8bn ($42.85/sh), CFO 4.8bn vs 3.6bn
DRAM 68% of total revs, +18% y/y and -9% q/q, ASPs down HSD q/q, shipments flat q/q
NAND +17% y/y, -2% q/q. ASPs down low-mid teens q/q, shipments up low-mid teens q/q, high value solutions were >50% of NAND bits.
CNBU -17% q/q to 3.6bn, Storage -8% q/q to 1.14bn, MBU +17% q/q to 2.21bn, EBU +1% to 933m
Expect CY19 industry demand DRAM +16%, NAND +35% with supply growth higher than demand growth, lowering DRAM output growth to +15%, NAND to +35%
2Q19 Guidance: Revs 5.7-6.3bn (-28% to -11% q/q, -22% to -14% y/y, est 7.3bn), GM 50-53%, OpEx 800m, EPS 1.65-1.85 (-38% y/y, est 2.44), mgmt. feels this is a short-term air pocket due to inventory corrections also higher share of R&D as partnership with INTC winds down (INTC’s share in 1Q was $30m or ~$0.02/sh).
Mgmt expects shipments down “meaningfully” q/q for both NAND and DRAM also scaling back their CapEx plans for FY19 to lower bit growth, expect improved trends in 2H CY19 as inventory adjustments get worked through, lowered FY19 Capex to 9-9.5bn
While guidance is lower than estimates, the stock continues to price in much worse earnings (stock was 50% off its peak while 2Q estimates were 30% off peak and the stock was sporting a low P/E at the peak implying that EPS should fall further than the stock), the duration and depth of this inventory adjustment and pricing cycle will determine if things bounce back in 2H CY19 as mgmt. expects as underlying demand trends continue.
WDC reported 1Q Revs -3.8% y/y to 5bn, -1.9% q/q, 2Q Guidance 4.2-4.4bn (-16% to -12% q/q, -21% to -17% y/y, ests of 5.4bn), WDC is also net debt of ~8bn, low end of MU 1Q guidance would be -6% q/q and 2Q Rev estimates are for -5% q/q
In the last 90 days, WDC’s 2Q EPS estimates fell from 3.73 to 3.08 or -17% and mgmt. guided to 1.55 (-61% y/y)
MU’s 2Q EPS estimates have fallen 10% from 2.92 to 2.63 (-7% y/y)
WDC is valued at 3X trailing earnings of 14.21 which are clearly going to plunge. MU is also valued at 3X trailing earnings which will likely fall but probably not nearly as much as WDC and MU has a much better balance sheet being net cash.
4Q18 3.53 vs 2.02, +75%, w/ 2.9% tax rate, est 3.34 up from 3.21
Sept 20, 2018, P=46.06, TTM EPS 11.95, P/E=3.9X, FY19 P/e=4X
Revs +38% to 8.44bn (est 8.25bn), GM 61.4% vs 51.3%, OM 52.6% vs 41.5%, OpInc +74%
DRAM 70% of Revs, +7% q/q and +47% y/y, ASPs flat q/q, shipments up mid-high single digits q/q, GM 71% vs 59% and 69% in 3Q, hit 1Xnm cost crossover in Client and Graphics in 4Q, on track for total crossover in 1Q19, start selling 1Ynm in CY19 with meaningful ramp in 3Q19
NAND 26% of Revs, +15% q/q and +21% y/y, ASPs down mid-teens while shipments +mid 30s, GM 48% vs 40% and 47.5% in 3Q, Expect 96L prodn shipments in 2H CY18
CNBU +53% to 4.36bn, OM 67% vs 56% and 66% in 3Q
Mobile +61% to 1.9bn, OM 52% vs 31% and 49% in 3Q
Embedded +12% to 923m, OM 41% vs 42% and 43% in 3Q
Storage -4.6% to 1.24bn, OM 13% vs 19$ and 14% in 3Q
1Q19 Guidance: Revs 7.9-8.3bn (+16-22%, est 8.44bn), GM 57-60% partly due to tariffs, EPS 2.88-3.02 (+18-23%, est 3.06)
Mgmt sees 1Q revs constrained by shortage of CPUs which caused PC makers to cut back on production and orders of memory chips and a few inventory adjustments at some customers, EPS to be impacted due to tariffs on imports from China. Mgmt expects 12% tax rate in FY19 vs 2.8% in FY18. Expects CY19 to grow DRAM bits in line with industry, ~20%, and NAND somewhat above industry growth of 35-40%, expects strong DRAM profitability
Company benefited from cost reductions and better mix as discussed in the investor conference, mgmt. expects further cost reductions in 2019.
FY18 SSDs well over $2bn (>7% of Revs), Enterprise and cloud SSD revs more than doubled, will be transitioning to new NVMe SSDs so mgmt. expects 2019 to be a transition year with return to growth in 2020.
>33% of FY18 Revs were from data center and graphics which more than doubled, mgmt. confident in long-term growth. >60% of NAND revs in FY18 from higher valued solutions
Solid results, stock is falling almost 7% after hours as guidance is lower than analyst estimates but quite frankly, the stock isn’t priced for current analyst estimates, the stock is priced for a significant cyclical downturn and so far the guidance is for continued growth. That said, the debate of what this cycle will look like will likely continue.
Mid Quarter Update
Micron’s weakness continues, Goldman downgraded saying 2019 could come in 31% lower than analyst estimates and stock could fall to $20 under a worst-case scenario. Unless the analyst expects further earnings declines into 2020, that would make this one hell of a cheap stock. Also, the CFO attended an investor conference and the company did not raise guidance, also the CFO commented that industry NAND pricing was down in the quarter (NOT a surprise as it’s the 3rd consecutive quarter of declines) although the company’s ASPs were up due to higher valued products (in 4Q call mgmt said ASPs were down but margins were up)
3Q18 3.15 vs 1.62, est 3.12 up from 2.63
June 20, 2018
Revs +40% to 7.8bn, GM 60.9% vs 48%, OM 51.5% vs 37.2%, OpInc +94%
CFO 4.26bn vs 2.42bn, ended quarter net cash
Mobile +12% q/q and +55% y/y to 1.75bn, Embedded +8% q/q and +28% y/y to 879m, Storage -9% q/q and +13% y/y to 1.14bn, Datacenter +87% y/y
DRAM 71% of Revs, +6% q/q and +56% y/y, shipments flat q/q, GM 69% vs 54% and 66% in 2Q, Trade NAND 25% of Revs +8% q/q and +14% y/y, shipments flat q/q, ASPs for both up mid-upper single-digit % q/q , GMs 47% vs 41% and 47% in 2Q, ASPs for NAND was due to richer mix (High-value mobile NAND almost doubled q/q) as like for like NAND pricing modestly down q/q, supports company’s assertion that they are going up the value chain.
Their NAND ASPs were up q/q despite 2nd quarter of industry declines.
4Q Guidance: 8-8.4bn (est 8.07), EPS 3.30 +/- .07 (+63% at midpoint, est 3.21)
May 21, 2018 Analyst Day Mid-Quarter Update
Raised guidance again, Revs 7.7-7.8bn (previously 7.2-7.6bn), EPS 3.12-3.16 (previously 2.76-2.90), est has moved up to 2.84
Also announced up to $10bn share buyback, commitment to return 50% pf FCF to investors starting in 2019
In partnership with Intel announced industry's 1st 1 terabit 4bits/cell 3D NAND flash enabling denser storage in smaller space bringing significant cost savings for read-intensive cloud workloads.
Also announced industry’s 1stsolid-sate drive (SSD) with quad-level cell NAND, optimized for read-intensive cloud workloads such as AI, machine learnings real-time analytics, big data, and media streaming. Further addresses markets traditionally serviced by hard-disks, reduces server sprawl by packing more performance into fewer racks.
This will put MU in net cash position unless they have significant capex or investment in working capital or share repurchases.
Stock is trading up in response but is still a bit below where it was when they reported 2Q, multiple keeps coming down.
2Q18 2.82 vs 0.90, est 2.74 up from 2.03
Revs +58% to 7.35bn, GM 58.4% vs 38.5%, OM 49.4% vs 25.3%
CFO 4.35bn vs 1.77, CapEx 2.11bn, Free cash flow 2.2bn
Record automotive design wins in 1H,
DRAM 71% of Revs, +14% q/q and +76% y/y, shipments up mid single digits q/q, ASPs + low double digits q/q
NAND 25% of Revs, -3% q/q, +28% y/y, shipments up low double digits q/q, ASPs down mid-teens q/q
Industry trends: Capabilities to enhance user experience require more and faster memory and storage, evolution in automotive requires datacenters on wheels, datacenter investment continues to require more and faster memory and storage (per server and more servers).
Expect CY18 industry DRAM bit growth ~20% with Micron growth in line with industry, NAND bit growth somewhat higher than 45% and Micron growth somewhat above the industry.
Re question of demand destruction from higher DRAM prices, mgmt. discussed the value from improved experiences exceeds the cost.
3Q Guidance: Revs 7.2-7.6bn (est 7.27), EPS 2.76-2.90 (est 2.63), temporary nitrogen supply issue in Taiwan will hurt 3Q Revs ~2%, should be resolved next week.
Mid Quarter Update
Micron raised guidance Revs 7.2-7.35bn (previously 6.8-7.2bn) and EPS 2.70-2.75 (previously 2.51-2.65), a solid raise on what was already strong guidance.
1Q18 2.45 vs 0.32, est 2.21 up form 1.84
Revs +71% to 6.8bn, GM 55.4% vs 26.0%, OM 46.4% vs 11.0%, ~80 of NAND was 3D
Gross margins were higher q/q for both DRAM and Trade Nand due to pricing and product mix.
Raised 1.36bn in equity (34m shares at $41) to reduce debt, repaid or converted 2.36bn of debt, substantial improvement in balance sheet, lower interest expense and improved leverage to more than offset dilutive effects from equity offering, CFO 3.6bn vs 1.1bn
Cloud and traditional enterprise datacentre continue to drive robust demand for memory and flash (Auto OEMs talk about 40GB of DRAM and 1TB of SSD per vehicle for level 4/5 fully autonomous which is a huge step up)
Re concerns of oversupply, mgmt. sees strong demand trends, increased applications, and higher capacities, NAND cost declines > price declines stimulate demand
2Q18 Guidance: Revs 6.8-7.2bn, GM 54-58%, OpEx 625-675m, OpInc 3.25-3.45bn, EPS 2.51-2.65 (est 2.03), FY18 DRAM bit growth to be weighted to 1H while NAND will be weighted to 2H
4Q17 2.02 vs (.01), est 1.84 up from 1.51 , FY EPS 4.96, TR 3%
Revs +91% to 6.14bn, GM 51.3% vs 18.6%, OM 41.5% vs 2.1%,
Mgmt expects “healthy fundamentals to continue into 2018 supported by increasingly diverse end markets and applications”, see solid opportunities in mobile
Strong demand in cloud and graphics, cloud sales driven by higher DRAM content per server (=~50% y/y)
DRAM prices +8% q/q, volume +5%, NAND prices +5% q/q, volumes +3%,
Mgmt expects DRAM and NAND markets to remain moderately undersupplied for remainder of CY 17. They see DRAM industry supply +20% in CY17 and similar growth in 2018, expecting supply/demand balance to remain healthy. Their DRAM supply should grow slightly less than the industry in 2018. For NAND, they expect industry supply in CY 17 +30% with supply being lower than demand, CY18 industry supply +50% which should better satisfy unfilled demand and their growth to be somewhat higher than the industry.
1Q Guidance: Revs 6.1-6.5bn (est 6.06), EPS 2.09-2.23 (est 1.85), see possibility of being net cash positive by end of FY18.
3Q17 1.62 vs (.03), est 1.51
Revs +92% to 5.57bn, +20% q/q, GM 48% vs 18.1%,
DRAM prices +14% q/q, volume +17%, company continues to lower unit costs
Company focused on using FCF to advance technology and reduce debt (paid down $1bn in 3Q), sees continued balance between supply and demand, business more diversified than ever and the end markets are expanding and growing. Even if a cycle downturn is near (we’re only 4 quarters in on the upturn), the next cycle will see a much bigger and more diversified market and with revenue and profits that might be characterized by higher highs and higher lows (the company is already hitting new record highs in revenue and profits and it’s not clear that we’re near the peak and what that peak will be nor what the lows would look like but if I think of average earnings through a cycle is ~$2, the company is reasonably valued).
4Q Guidance: Revs 5.7-6.1bn (est 5.4bn), EPS 1.73-1.87 (est 1.57)