Micron Finally Swings Back to a Profit

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Clearly, the last few years have been hard on some hardware producers, as both market conditions and consumer behavior have changed drastically in recent times. Micron Technology (NASDAQ: MU) is one of the firms that have been struggling to turn a profit for a while now, as the semiconductor memory business in which it operates has been extremely poor. Now, for its most recent quarterly report, the firm has printed black ink again, following a huge run-up in share price.

Stock Overview

Micron Technology is one of the world’s largest producers of semiconductor memory technology, manufacturing NAND Flash, DRAM and NOR Flash memory. Based in Idaho, the company has some 27,400 employees. The stock has a market cap of $13.1 billion and is up a staggering 129% over the last year, presumably in anticipation of its first quarterly profit in years. With a beta of 1.21, the stock isn’t too volatile.

Losses and Recovery

Micron suffered badly from the collapse of the memory market, which saw many memory producers go out of business. The company reported quarterly losses from Q4 2011 to Q3 2013, with some enormous misses along the way. Q3 2012 was particularly brutal, with a $0.32 loss which missed by over 60%. Now, things finally seem to be turning around again. The company reported a profit for its most recent fiscal quarter, which beat the consensus.

EPS for the quarter came in at $0.04, beating the $0.02 consensus and up from a loss of $0.28 in the last quarter. Net sales were up about 12% to $2.3 billion and the gross margin expanded impressively from 18% to 24%. The company is seeing an improved market for memory, and especially strong demand for its DRAM and NAND products. DRAM revenue increased by 23%, a result of higher prices and increased demand. NAND also did rather well, with an 8% increase in bit sales also driven mainly by higher prices. As the memory market continues to improve, the company’s results should benefit going forward. Additionally, Micron’s acquisition of Elpida seems to be successful so far, and should account for further growth in mobile.

Competitors

Other memory producers may also stand to benefit from higher prices in the memory market, although this hasn’t materialized for all of them. Samsung (NASDAQOTH: SSNLF) is the world’s largest producer of memory with a market share of roughly 35%. Contrary to what Micro reported, Samsung saw its sales as well as its operating income from memory drop some 4% and 25% respectively. According to the release, PC demand remained seasonally weak, while mobile sales were pretty solid. The company is increasingly turning towards mobile and server DRAM products as they seem to offer the best opportunities for growth.

SanDisk (NASDAQ: SNDK) is another company active in the sector, and primarily manufactures NAND based solution products. While its growth slowed down somewhat in 2012, annual EPS dropping to $2.38 from $4.65, results were considerably better than analysts had expected. The company kicked off fiscal 2013 with a fairly healthy beat, with record first quarter retail revenue. SSD storage accounted for some 20% of sales, with total revenue increasing 11% year-over-year. SanDisk is clearly also benefiting from increased demand and pricing for memory.

The Bottom Line

Things finally seem to have turned around for ailing memory company Micron Technology. After a long slump, caused mainly by weakness in the global memory market, demand and prices are picking up. In anticipation of this development, the stock has had a great run-up in price, and may now be a bit overbought. However, a quarterly profit is no doubt a great sign for the company’s future, and it may be able to keep up this performance throughout the rest of the year. 

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