Micron Earnings Beat Expectations
By Michael Fitzpatrick
LOS ANGELES (Reuters) - Micron Technology Inc. (NYSE:MU - news), the world's second-biggest maker of computer memory chips, on Thursday posted better-than-expected profits, buoyed by a surge in semiconductor sales.
The Boise, Idaho-based company posted net income of $275 million, or 47 cents a share on a diluted basis, for its third fiscal quarter ended June 1. That compared with a year-ago loss of $28 million, or 5 cents a share. The per share results for both years reflect a 2-for-1 stock split effective May 1.
Wall Street analysts had expected the company to post earnings of 34 cents a share, according to First Call/Thomson Financial.
Sales rose to $1.8 billion from $864 million.
``They absolutely blew away the Street,'' said Peter Wolff of ING Barings. ``Things are improving pretty rapidly there ... We're a table-pounding strong buyer.''
While semiconductor market conditions have improved and average selling prices were up in late May and early June, Micron said average selling prices for the third fiscal quarter were about 20 percent lower than the second fiscal quarter.
``The fact that they beat estimates with lousy prices was really key,'' said Banc of America Securities analyst Rick Whittington.
``I'm going to raise estimates for the fourth quarter based on better pricing. They made my estimate with lower pricing...,'' Whittington said. ``Everything that I hear is that we're in a DRAM (dynamic random access memory chip) constrained market in that the OEMs (computer makers) can't get enough supply,'' Whittington said.
Micron stock fell 6-1/4 to 84-13/16 in Nasdaq trading. The earnings were released after the market closed.
While reluctant to say so, Micron executives acknowledged they were having to allocate memory chips to contend with unmet customer demand. ``Generally it's our perception that supply is really tight,'' one company official said during a conference call that followed the financial report.
``The market is tight,'' Wolff said. ``I think prices are going to get very, very strong through the fourth quarter.''
Asked by an analyst about prices Micron was negotiating with its major customers currently for its basic memory products, a Micron executive differentiated between prices under contract and spot market pricing.
``Currently OEM contract pricing is in the mid-$6 range and definitely trending higher. Spot market (pricing) is in the $7-$8 range and trending higher,'' he said. OEMs are Original Equipment Manufacturers such as PC makers or consumer electronics equipment makers who rely on Micron memory chips.
Micron said its semiconductor sales for the third quarter were $1.5 billion, up 30 percent from the second quarter due to a significant rise in megabits of memory shipped.
Total megabits of memory produced in the third fiscal quarter were about 30 percent higher than the second quarter.
Excluding a nonrecurring adjustment, gross margin on semiconductor memory products was 40 percent in the latest quarter, down from 41 percent in the second quarter.
The company's overall gross margin was 36 percent excluding the nonrecurring adjustment, in the third quarter, off from 37 percent in the immediately preceding quarter.
Micron officials dismissed an analyst's fear that, with price levels trending above $8 for memory, additional chip manufacturers could be motivated to reenter the market.
They noted that current levels of profitability were still well below levels three or four years ago, when a number of competitors were enticed to enter the memory market, depressing chip prices until very recently.
Micron said recent expansion announcements by rivals such as Samsung Electronics Co. Ltd. (05930.KS), the world's largest supplier of computer memory chips, would take at least 18 months to deliver results, giving stability to pricing during that timeframe.
``It would appear that there's just no capacity left to be brought on,'' Whittington said, ``and because there's an 18-month lead time to build factories in this industry, we're going to be pretty tight for a period of time.''
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