Micron (MU) Q3 Earnings Beat Estimates, Q4 Outlook Impressive

Dee Yonker

Micron Technology MU reported stellar results for third-quarter fiscal 2021, wherein the top and bottom lines surpassed the respective Zacks Consensus Estimate and marked solid year-over-year improvements as well.

The company’s fiscal third-quarter non-GAAP earnings per share of $1.88 beat the Zacks Consensus Estimate of $1.71. Moreover, non-GAAP earnings registered year-over-year growth of a whopping 129%. Quarterly revenues of $7.42 billion outpaced the consensus mark of $7.24 billion and increased 36% from the year-ago quarter’s $5.44 billion.

Revenue Details

DRAM revenues of $5.45 billion, accounting for 73% of total revenues in the fiscal third quarter, jumped 52% year over year and 23% sequentially. Bit shipments grew in the low-single-digit percentage range sequentially, while ASPs were up approximately 20% on a quarter-on-quarter basis.

NAND revenues of $1.81 billion, representing 24% of the total top line, were up 9% on a year-over-year basis and 10% quarter on quarter. While NAND ASP increased in the high-single-digit percentage band, bit shipments grew in the low-single-digit percentage range sequentially.

Micron Technology, Inc. Price, Consensus and EPS Surprise

Micron Technology, Inc. Price, Consensus and EPS Surprise

Micron Technology, Inc. price-consensus-eps-surprise-chart | Micron Technology, Inc. Quote

Business-unit wise, revenues of the computing and networking business (CNBU) unit climbed 49% from the year-ago quarter and 25% sequentially to $3.30 billion. The company noted that revenue growth was driven by broad-based sequential price increase.

Revenues of approximately $2 billion from the Mobile Business Unit (MBU) climbed 31% on a year-over-year basis and 10% sequentially. This improvement was mainly backed by healthy demand in the mobile market as 5G handset sales continue to shoot up.

The Embedded Business Unit (EBU) revenues logged $1.11 billion, up 64% from the year-ago period and 18% from the previous quarter, primarily driven by record auto revenues and solid industrial demand.

Revenues from the Storage Business Unit (SBU), comprising SSD NAND components, totaled $1.01 billion, flat year on year and up 17% sequentially. The company noted that both client and SSD revenues set new records.

Margins

Micron’s non-GAAP gross profit of $3.19 billion surged 76.6% year on year and 55.1%, sequentially. Non-GAAP gross margin improved to 42.9% from the prior quarter’s 32.9% and the year-ago quarter’s 33.2%, chiefly on increase in DRAM and NAND prices.

Micron’s non-GAAP operating income of $2.36 billion surged 141%, year over year, and 88.1%, sequentially. Non-GAAP operating margin expanded to 31.9% from the year-ago quarter’s 18% and the previous quarter’s 20.2%, primarily on higher gross margin and lower operating expenses.

Non-GAAP operating expenses came in at $821 million compared with the previous quarter’s $797 million and the year-ago quarter’s $823 million. The company noted that operating expenses benefited from about $21 million of gains from the sales of certain assets.

Balance Sheet and Cash Flow

The company exited the reported quarter with cash and investments of $9.8 billion compared with the $8.5 billion recorded at the end of the prior quarter. Furthermore, it ended the quarter with a total liquidity of $12.3 billion compared with the $11.1 billion witnessed at the end of the fiscal second quarter.

Micron’s long-term debt as of Jun 3, 2021 was $6.42 billion compared with the $6.6 billion witnessed at the end of the fiscal second quarter.

The company generated operating cash flow of $3.56 billion during the fiscal third quarter and free cash flow of $1.52 billion. During the first three quarters of fiscal 2021, the company generated operating and free cash flows of $8.58 billion and $1.79 billion, respectively.

Q4 Outlook

The company anticipates revenues of $8.2 billion (+/-$200 million) for the fiscal fourth quarter. The Zacks Consensus Estimate is pegged at $7.91 billion for the same.

For the fiscal fourth quarter, Micron projects non-GAAP gross margin of 47% (+/-100 bps). Operating expenses on a non-GAAP basis are likely to be $900 million (+/-$25 million).

Adjusted earnings per share are anticipated to be $2.30 (+/-10 cents). The consensus mark is pegged at $2.12 per share.

During the fiscal second-quarter conference call, the company had noted that it continues to forecast rise in operating expenses during the second half of fiscal 2021 due to higher prequalification and labor expenses.

Notably, during its fiscal first-quarter conference call too, Micron had stated that it projects operating expenses to flare up in the second half of fiscal 2021. The previously-delayed fiscal 2021 salary hikes which takes effect at the beginning of the fiscal third quarter are expected to trigger this upswing in expenses.

Zacks Rank & Key Picks

Micron currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include Digital Turbine APPS, Zoom Video Communications ZM and NVIDIA NVDA. While Digital Turbine and Zoom sports a Zacks Rank #1 (Strong Buy), NVIDIA carries a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Digital Turbine, Zoom and NVIDIA is currently pegged at 50%, 15.6%, and 17.6%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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