Micron Technology, Inc. (NASD: MU)

Transcription

1 Jun 11, 2015 Micron Technology, Inc. (NASD: MU) $ USD ( As of 06/11/15 ) Zacks Rank 4-Sell Style Scores: Growth: Value: Momentum: Data Overview 52 Week High-Low $ $ Day Average Volume 21,372,644 Beta 1.71 Market Cap B Dividend / Div Yld $0.00 / 0.00% Industry SEMI-MEMORY Industry Rank 250 / 265 (Bottom 6%) Growth Score Hist. EPS Growth (3-5 yrs) 31.48% Proj. EPS Growth (F1/F0) -1.21% Curr. Cash Flow Growth % Hist. Cash Flow Growth (3-5 yrs) 48.49% Summary Micron Technology is a provider of advanced semiconductor solutions. The company reported better-than-expected results for second-quarter fiscal However, anticipating a decline in ASP of DRAM products, the company provided tepid thirdquarter revenue guidance. The main factors impacting the DRAM guidance for the upcoming quarter are weak PC DRAM sales and unfavorable pricing environment. Nonetheless, we are optimistic about the recently revised DRAM supply agreement with Inotera which will positively impact the memory chipmaker s profit margins in the long run. Moreover, Micron is optimistic about supply/demand balance for DRAM and NAND memory chips in the year ahead, which should support prices and improve margins over the long run. Elements of the Zacks Rank Agreement Estimate Revisions (60 days) Current Ratio 2.41 Debt/Capital 29.34% 100% 100% 100% 100% Net Margin 22.97% Return on Equity 32.94% Sales/Assets 0.76 Q1 (Current Qtr) Revisions: 2 Up: 0 Down: 2 Q2 (Next Qtr) Revisions: 2 Up: 0 Down: 2 F1 (Current Year) Revisions: 3 Up: 0 Down: 3 F2 (Next Year) Revisions: 2 Up: 0 Down: 2 Proj. Sales Growth (F1/F0) 4.58% Value Score Magnitude Consensus Estimate Trend (60 days) Cash/Price 0.16 EV/EBITDA 5.29 PEG Ratio 0.71 Price/Book (P/B) 2.05 Price/Cash Flow (P/CF) 4.49 P/E (F1) Current Q1-3.03% Current Q2-5.00% Current F1-1.55% Current F2-1.84% Price/Sales (P/S) 1.61 Earnings Yield 12.62% Upside Zacks Consensus Estimate vs. Most Accurate Estimate Debt/Equity 0.42 Cash Flow ($/share) 5.62 Momentum Score Most Accurate: 0.55 Most Accurate: 0.64 Most Accurate: 2.95 Most Accurate: 3.61 Daily Price Chg -2.82% Zacks Consensus: 0.64 Zacks Consensus: 0.76 Zacks Consensus: 3.18 Zacks Consensus: Week Price Chg -0.05% Q % Q % F1-7.23% F2-3.22% 4 Week Price Chg -6.25% 12 Week Price Chg -8.93% Surprise Reported Earnings History 52 Week Price Chg % 20 Day Average Volume 21,059,022 (F1) EPS Est Wkly Chg -1.30% (F1) EPS Est Mthly Chg -1.62% (F1) EPS Est Qtrly Chg % (Q1) EPS Est Mthly Chg -4.44% Reported: 0.81 Estimate: 0.77 Q End 02/15 Reported: 0.97 Estimate: 0.92 Q End 11/14 Reported: 0.82 Estimate: 0.82 Q End 08/14 Reported: 0.79 Estimate: 0.71 Q End 05/14 Average 4 Qtr Surprise 2015 Zacks Investment Research, All Rights Reserved 10 S. Riverside Plaza Suite 1600 Chicago, IL 60606

2 The data on the front page and all the charts in the report represent market data as of 06/11/15, while the reports text is as of 06/11/2015 Overview Idaho-based Micron Technology (MU) is a provider of advanced semiconductor solutions. Through its worldwide operations, Micron manufactures and markets Dynamic Random Access Memory (DRAM), NAND flash memory, CMOS image sensors, other semiconductor components and memory modules used in leading-edge computing, consumer, networking and mobile products. A major portion of the revenues is derived from DRAM sales. The company also provides CMOS image sensor solutions to the handset camera, digital still camera and PC video camera markets. On Dec 29, 2009, Micron voluntarily transferred its stock exchange listing from The New York Stock Exchange to the Nasdaq Global Select Market, a market of The NASDAQ OMX Group. The company reorganized its business units in the third quarter of 2014 into four reportable segments namely, Compute and Networking Business Unit (CNBU) comprising of DRAM and NOR Flash products that are sold to the computer, networking, graphics, and cloud server markets, and NAND Flash products sold into the networking market; Storage Business Unit (SBU) accounts for the NAND Flash components and Solid State Drives (SSDs) sold in enterprise and client storage markets, and cloud and removable storage markets; Mobile Business Unit (MBU) comprise Micron s DRAM, NAND Flash, and NOR Flash products that are sold to smartphone, feature phone, and tablet mobile-device manufacturers. Embedded Business Unit (EBU) which includes DRAM, NAND Flash and NOR Flash products from Micron sold to automotive and industrial applications providers and other consumer electronics manufacturers. The bulk of revenues is generated in China, followed by the U.S., Asia Pacific (excluding China, Taiwan and Malaysia), Taiwan, Europe and Malaysia. Further, in fiscal 2014, sales to Kingston accounted for approximately 10% of total net sales, while Intel and Hewlett- Packard contributed 8% and 9%, respectively. Micron competes with Samsung, Electronics Co., Ltd., SanDisk Corporation, SK Hynix Inc., Spansion Inc. and Toshiba Corporation. Zacks Equity Research: MU Page 2 of 8

3 Reasons To Buy: We are positive about the recently revised DRAM supply agreement with Inotera. Moreover, Micron is optimistic about supply/demand balance for DRAM and NAND memory chips in the year ahead. We are optimistic about the company s future prospects given the revised DRAM supply agreement with Inotera which was entered into in February this year. Per the new 2015 Supply Agreement, valid till Dec 31, 2015, Micron will purchase Inotera s entire DRAM output at a discount to the market price. Furthermore, a separate two-year supply agreement has been signed by the companies per which the price for DRAM products sold to Micron is based on a formula that equally shares margin between Inotera and Micron. This deal will take effect in In fiscal 2014, Micron purchased approximately $2.68 billion DRAM products from Inotera which accounted for nearly 38% of its total DRAM gigabit production. With such a massive exposure to a single supplier, we believe that the recent deal will positively impact the memory chipmaker s profit margins. Furthermore, we remain positive on the company s expectation of a higher demand for DRAM products than their supply, which will support prices and improve margins. Micron offers both DRAM and NAND products. DRAM chips are a key component in PCs, while NAND flash chips are critical to portable electronic devices. We remain encouraged by the favorable conditions in the memory market due to fewer suppliers, limited new wafer capacity, differentiated products and diversified customer base which are expected to boost Micron s prospects. The company is expected to benefit from the strong demand for NAND flash-memory chips, used in smartphones and tablets. Driven by new tablet products and greater adoption of solid state drive (SSD), total demand in the NAND flash memory industry could surpass manufacturing capacity, leading to periodic shortage and higher pricing in the near term. During the second-quarter fiscal 2015 conference call, Micron also hinted that supply-demand balance will be favorable in the years ahead, support prices and improve margins. Micron continues to focus on the SSD segment as well. In an effort to expand its SSD product portfolio, the company in Feb 2015 partnered with Seagate to supply a significant portion of the latter s NAND requirement. In return, Seagate will share its SAS SSD technology with Micron a key technology which the latter lags in the enterprise SSD market. Though the companies have not disclosed the financial terms of the contract, we believe that the deal will expand Micron s high-value enterprise SSD portfolio. It is worth noting that Gartner forecasts the total addressable market (TAM) for SSDs to grow from $6.9 billion in 2012 to $22.3 billion in 2017 (CAGR 26%). Over the years, Micron has made several significant acquisitions to enhance its capabilities. The most notable one among them is the Elpida acquisition (now known as Micron Memory Japan) in 2013 which catapulted Micron to the 5th spot from the 10th in Gartner s 2013 list of Top 10 Semiconductor Vendors by Revenue, Worldwide and to the 4th spot in This is due to the fact that the Elpida acquisition has expanded Micron s wafer manufacturing capacity by approximately 45%. Moreover, it added Apple Inc. to its customer roster which should continue to drive growth. Additionally, Micron s other acquisitions, such as Rexchip Electronics Corporation, now known as Micron Memory Taiwan Co., Ltd, and the ownership interests in Inotera and Tera Probe, Inc. will boost the company s mobile DRAM offerings and wafer testing and probe services. Micron has a strong cash flow generating ability which helps it to make strategic acquisitions and invest in new products. Micron generated approximately $2.84 billion of cash flow from operational activities. Furthermore, the company ended the second quarter of fiscal 2015 with a cash and short-term investment balance of $4.48 billion. Although the company has a significant amount of debt on its balance sheet, the robust cash flow has enabled it to service its debt efficiently. Reasons To Sell: The Zacks Consensus Estimate for Micron has moved lower over the last 60 days following the company s tepid top-line outlook for third quarter due to anticipating weak performance of DRAM products. The company expects DRAM ASPs to be down in high single-digits in the forthcoming quarter. Projected bit cost is expected to be down in low single-digits, whereas bit growth is expected to be up in high single-digits, all on a sequential basis. The main factors impacting the DRAM guidance for the upcoming quarter are weak PC DRAM sales and unfavorable pricing environment. So we have turned incrementally cautious. Micron provided tepid third-quarter revenue guidance. Moreover, stiff competition and pricing pressure remain headwinds. Micron faces competition from Samsung Electronics Co., Ltd., SanDisk Corporation, SK Hynix Inc., Spansion Inc. and Toshiba Corporation in the semiconductor memory market. Notably, wafer capacity increases from its competitors could disrupt DRAM and NAND supply dynamics affecting prices and the company s results. The company s business model is exposed to the same cyclical factors, which are typical of the semiconductor market. Its results are also affected by product life cycles, which could grow rapidly or fail to take off. Moreover, if the company misses a product cycle, it could result in market share losses, as competitors capitalize on such opportunities. In addition, higher capital requirements and a complex production process may delay product rollouts. Micron continues to acquire a large number of companies. While this improves revenue opportunities, business mix and profitability, it also adds to integration risks. Moreover, frequent acquisitions are a distraction for management, which could impact organic growth, going forward. Last Earnings Report Zacks Equity Research: MU Page 3 of 8

4 Micron Beats on Q2 Earnings & Revenues Micron reported better-than-expected second-quarter fiscal 2015 results wherein the top line and bottom line surpassed the respective Zacks Consensus Estimate. Adjusted earnings (excluding the impact of the Micron Memory Japan, Inc. acquisition and other onetime items) came in at $0.81, which surpassed the Zacks Consensus Estimate of $0.77. However, adjusted earnings decreased from $0.85 reported in the year-ago quarter. Quarter Ending 02/2015 Report Date Apr 01, 2015 Sales Surprise 0.13% EPS Surprise 5.19% Quarterly EPS 0.81 Annual EPS (TTM) 3.39 Quarter Details Micron s revenues in the quarter not only increased 1.4% on a year over year basis to $4.17 billion but also beat the Zacks Consensus Estimate of $4.16 billion. The substantial year-year-over increase in revenues could be mostly attributed to improving market conditions, diversified product portfolio as well as an encouraging operating performance. Also, better-than-expected demand in NAND contributed to the overall revenue growth. NAND Flash products revenues grew 3% on a sequential basis, primarily due to an increase in bit sales volume (up 12%), which was partially offset by a 9% decline in ASPs (average selling price). However, DRAM product revenues decreased approximately 13% on a sequential basis, primarily due to lower bit sales volume (down 9%) and ASPs (down 6%). Coming to the Storage Business Unit (SBU), revenues came in at $954 million during the quarter, down marginally on a sequential basis. Revenues from the Mobile Business Unit (MBU) came in at $856 million during the quarter, primarily aided by better-than-expected demand in mobile. The computing and networking business saw weak demand with revenues of $1.8 billion during the quarter, primarily due to an unfavorable pricing environment and lower-than-expected demand for PC notebooks. Networking DRAM pricing remained stable primarily due to LTE deployment in China and emerging markets. Revenues from embedded business came in at $502 million, up slightly on a sequential basis. The increase can be attributed to growth in the automotive segment. It is worth mentioning that Micron recently unveiled 3D NAND technology to meet the growing demand for personal storage and also to cater to the media and entertainment market. We believe that key technology inflections in areas like 3D NAND will boost growth and profitability of the company, going forward. Micron s gross profit was approximately flat on a year over year basis and came in at $1.40 billion. Gross margin came in at 33.7% versus 34.2% a year ago, primarily due to lower ASPs for NAND and DRAM and higher cost of sales. Selling, general and administrative (SG&A) expenses increased 5.7% year over year to $187 million. Research and development (R&D) expenses came in at $379 million, 10.2% higher than the year-ago quarter. Micron reported operating income of $855 million, which decreased from $869 million reported in the year-ago quarter, primarily due to higher operating expenses. Operating expenses, as a percentage of revenues, increased 20 basis points on a year-over-year basis. Micron recorded non-gaap net income (excluding the impact of the Micron Memory Japan, Inc. acquisition and other one-time items) of $941 million or $0.81 during the quarter compared with $989 million or $0.85 reported in the year-ago quarter. On a GAAP basis, net income came in at $934 million compared with $731 million reported in the year-ago quarter. The company exited the second quarter with cash and short-term investments of $4.48 billion compared with $4.23 billion in the previous quarter. Receivables were $2.76 billion compared with $2.66 billion in the previous quarter. Micron s long-term debt increased to $5.52 billion from $4.61 billion in the previous quarter. Cash generated from operations was $1.25 billion compared with $1.59 billion in the previous quarter. Free cash flow came in at $400 million. Capital expenditure was $853 million compared with $669 million in the previous quarter. During the quarter, the company repurchased approximately $200 million shares on the prevailing $1 billion stock repurchase program. Guidance For the third quarter of fiscal 2015, Micron expects revenues in the range of $3.8 to $4.1 billion. The Zacks Consensus Estimate is pegged higher at $4.27 billion. Micron expects DRAM ASPs to be down in high single digits in the forthcoming quarter. Projected bit cost is expected to be down in low single digits, whereas bit growth is expected to be up in high-single digits, all sequentially. The main factors impacting the DRAM guidance for the upcoming quarter are weak PC DRAM sales and unfavorable pricing environment. Zacks Equity Research: MU Page 4 of 8

5 NAND ASP is expected to be up in mid-single digits sequentially. Bit costs are expected to be up in mid-single digits, whereas prediction bit growth is expected to be down in low single digits. The main factors impacting the NAND guidance for the upcoming quarter are stable NAND and client SSD market conditions and favorable mix in mobile segment and managed NAND products. Management expects SG&A expenses in the range of $180 to $190 million in the third quarter of fiscal R&D expenses are expected in the range of $385 to $395 million. Recent News Micron Launches Consumer-Class TLC NAND Flash Storage - Jun 2, 2015 Micron Technology Inc. has developed a new consumer-class flash storage device based on Triple-Level-Cell (TLC) NAND technology. The new flash storage device is built on the company s 16-nanometer (nm) process and thus, named 16-nm TLC NAND. This TLC NAND product offers a more efficient and cost effective solution, and is suitable for applications like USB drives and consumer solid state drives (SSDs). Furthermore, Micron claims that the device requires 28% lesser die area compared with Multiple- Level-Cell NAND storage devices of the same capacity. The new product is aimed at further innovation in memory technologies which in turn will strengthen the company s product portfolio. We believe that the momentum from the launch of 16-nm TLC NAND will help Micron to emerge as a major player in the fast-growing storage market, thus lending greater stability to its revenue stream. Additionally, this will help Micron gain new customers, going forward. Micron Raises $1 billion through Senior Notes Offerings - Apr 30, 2015 On Apr 30, 2015, Micron closed the sale of two senior notes offerings of combined value of $1 billion. The first part of the senior notes was worth $550 million with a coupon rate of 5.250% and matures on Jan 24, The second part is worth $450 million which carries an interest rate of 5.625% and matures on Jan 15, Micron, Inotera Amend DRAM Supply Deal Feb 10, 2015 Micron recently revised the DRAM supplying agreement with Inotera. As per the new 2015 Supply Agreement, Micron will purchase Inotera s DRAM output at a discount to the market price. The 2015 Supply Agreement is valid till Dec 31, The last supply agreement was signed on Jan 17, 2013 under which Micron was to buy Inotera s DRAM production at market price. Therefore, the amended agreement will have a positive impact on Micron s margins for fiscal Furthermore, a separate two-year supply agreement has been signed by the companies per which the price for DRAM products sold to Micron is based on a formula that equally shares margin between Inotera and Micron. This deal is scheduled to take effect in Taiwan-based Inotera was formed in 2003 as a joint venture between Nanya Technology Corporation and Infineon. The company provides DRAM memory foundry services especially on 300-mm silicon wafers. In 2009, Micron partnered with Nanya in Inotera and bought a significant portion of ownership interest in Inotera. As of Dec 4, 2014, Micron had a 33% ownership interest in Inotera. In fiscal 2014, Micron purchased approximately $2.68 billion of DRAM products from Inotera which accounted for nearly 38% of its total DRAM gigabit production. With such a massive exposure to a single supplier, we believe that the recent deal will positively impact the memory chipmaker s profit margins, going forward. Zacks Equity Research: MU Page 5 of 8

6 Industry Analysis Zacks Industry Rank: 250 / 265 (Bottom 6%) Top Peers APPLIED OPTOELE (AAOI) ANALOG DEVICES (ADI) ALTERA CORP (ALTR) AMBARELLA INC (AMBA) APPLD MICRO CIR (AMCC) ADV MICRO DEV (AMD) AMKOR TECH INC (AMKR) ANADIGICS CORP (ANAD) SANDISK CORP (SNDK) Industry Comparison Semi-memory Position in Industry: 1 of 2 Industry Peers MU Market Cap B # of Analysts 21 Dividend Yield 0.00% Growth Score Hist. EPS Growth (3-5 yrs) 31.48% Proj. EPS Growth (F1/F0) -1.21% Curr. Cash Flow Growth % Hist. Cash Flow Growth (3-5 yrs) 48.49% Current Ratio 2.41 Debt/Capital 29.34% Net Margin 22.97% Return on Equity 32.94% Sales/Assets 0.76 Proj. Sales Growth (F1/F0) 4.58% Value Score Cash/Price 0.16 EV/EBITDA 5.29 PEG Ratio 0.71 Price/Book (P/B) 2.05 Price/Cash Flow (P/CF) 4.49 P/E (F1) 7.92 Price/Sales (P/S) 1.61 Earnings Yield 12.62% Debt/Equity 0.42 Cash Flow ($/share) 5.62 Momentum Score Daily Price Chg -2.82% 1 Week Price Chg -0.05% 4 Week Price Chg -6.25% 12 Week Price Chg -8.93% 52 Week Price Chg % 20 Day Average Volume 21,059,022 (F1) EPS Est Wkly Chg -1.30% (F1) EPS Est Mthly Chg -1.62% (F1) EPS Est Qtrly Chg % (Q1) EPS Est Mthly Chg -4.44% X Industry S&P B B % 1.84% % 9.70% % 6.11% % 6.95% 36.30% 10.00% % 38.62% 17.52% 10.02% 23.89% 17.14% % 1.70% % 5.38% % -0.02% -0.02% -0.01% 0.00% -1.27% -8.93% -0.83% % 6.01% 12,006,904 2,058, % 0.00% -0.81% 0.00% % -0.38% -2.22% 0.00% AAOI ADI SNDK M B B % 2.44% 1.80% NA -0.89% 4.42% 40.12% 21.34% % % 16.36% 7.02% NA 16.35% 24.11% % 9.12% 17.19% 2.59% 21.48% 12.06% 6.78% 17.29% 14.83% % 15.84% % % 4.41% 3.61% % -0.39% -1.04% 0.02% -0.01% 0.00% 18.43% 5.82% 0.21% 36.50% 11.79% % % 17.75% % 310,737 2,607,992 2,954, % 0.00% 0.00% -5.02% -0.09% 0.00% -5.42% 0.43% % 0.00% -2.41% 0.00% Zacks Equity Research: MU Page 6 of 8

7 Zacks Rank Education The Zacks Rank is calculated from four primary inputs: Agreement, Magnitude, Upside and Surprise. Agreement This is the extent which brokerage analysts are revising their earnings estimates in the same direction. The greater the percentage of estimates being revised higher, the better the score for this component. For example, if there were 10 estimate revisions over the last 60 days, with 8 of those revisions up, and the other 2 down, then the agreement factor would be 80% positive. If, however, 8 were to the downside with only 2 of them up, then the agreement factor would be 80% negative. The higher the percentage of agreement the better. Magnitude This is a measure based on the size of the recent change in the current consensus estimates. The Zacks Rank looks at the magnitude of these changes over the last 60 days. In the chart to the right, the display shows the consensus estimate from 60-days ago, 30-days ago, 7-days ago, and the most current estimate The difference between the current estimate and the estimate from 60-days ago is displayed as a percentage. A larger positive percentage increase will score better on this component. Upside This is the difference between the most accurate estimate, as calculated by Zacks, and the consensus estimate. For example, a stock with a consensus estimate of $1.00, and a most accurate estimate of $1.05 will have an upside factor of 5%. This is not an indication of how much a stock will go up or down. Instead, it's a measure of the difference between these two estimates. This is particularly useful near earnings season as a positive upside percentage can be used to help predict a future surprise. Surprise The Zacks Rank also factors in the last few quarters of earnings surprises. Companies that have positively surprised in the recent past have a tendency of positively surprising again in the future (or missing if they recently missed). A stock with a recent track record of positive surprises will score better on this factor than a stock with a history of negative surprises. These stocks will have a greater likelihood of positively surprising again. Zacks Style Score Education The Zacks Style Score is as a complementary indicator to the Zacks Rank, giving investors a way to focus on the best Zacks Rank stocks that best fit their own stock picking preferences. Academic research has proven that stocks with the best Growth, Value, and Momentum characteristics outperform the market. The Zacks Style Scores rate stocks on each of these individual styles and assigns a rating of A, B, C, D and F. An A, is better than a B; a B is better than a C; and so on. Growth Score Value Score Momentum Score As an investor, you want to buy stocks with the highest probability of success. That means buying stocks with a Zacks Rank #1 or #2, Strong Buy or Buy, which also has a Style Score of an A or a B. Zacks Equity Research: MU Page 7 of 8

8 Disclosures The analysts contributing to this report do not hold any shares of this stock. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts' personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. Zacks Equity Research: MU Page 8 of 8