Micron intends to maintain its leadership in the segment
Micron Company (MUI) reported for the third quarter better than analysts’ estimates. However, management’s forecast for the next three months was below the consensus from FactSet. Micron’s revenue increased 36.6% YoY, beating analysts’ estimates by 0.6%. At the same time, the indicator coincided with the initial forecast of management.
However, it’s worth noting that the third quarter was longer last year (14 weeks). As a result, diluted non-GAAP EPS grew at an annualized rate of 2.24x, 3.8% above market expectations, and 2% above management’s initial estimates. In addition, during the conference call, Micron’s CEO paid particular attention to the issuer’s technological leadership.
The company’s head noted the increase in maturity for 1-alpha DRAM solutions and 176-layer NAND products by 20% and 30%, respectively, compared with the previous generation. As a result, the bulk of NAND products will be based on 176-layer architecture by the end of the year.
The company CEO noted that in terms of technology, Micron is several quarters ahead of competitors. However, to maintain its leading position, the issuer intends to increase R&D costs by 15% in the next fiscal year and expand investments in purchasing the latest EUV systems.
The DRAM segment’s revenue increased by 39% YoY (versus 52% growth in the second quarter), both due to an increase in shipments in physical terms and due to a rise in product prices by 7-9% QoQ. Sales of NAND solutions rose 29%, while average prices in this segment increased by 7-9%. In addition, the CEO noted the improvement in NVMe SSD products’ portfolio and predicted the imminent launch of SSD solutions based on the fourth generation of PCIe.
The increase in the share of QLC also had a positive effect on sales. The non-GAAP operating margin rose 15.6 pp to 37.1% on the back of 5 pp gross margin growth and positive operating leverage. Among the long-term triggers, the CEO highlighted the outstripping growth rates of the automotive, industrial, and markets, where the issuer has a strong position. However, despite expectations of record revenues in 2022, management did not elaborate on the numbers.
Among the short-term drivers of growth, the head of Macron noted the transition to smartphones with 5G support (these products use 50% and 100% more DRAM and NAND components, respectively), as well as the continued strong momentum from the DC. In addition, the company’s CFO noted strong demand in the main product segments while pointing to the expectation of a decrease in shipments in October-December (every quarter) against the background of normalization of inventories.
According to management forecast, subsequent quarter revenue will grow by 32.6%; gross margin will reach 47%, the non-GAAP operating margin will be 35%. In general, we view the issuer’s results as neutral: the results for the third quarter were better than expected, but the growth forecast for the next quarter fell short of analysts’ estimates.
In addition, Micron’s management avoided commenting on the relative price dynamics and did not repeat the previous thesis regarding the continued supply deficit until 2022. We believe the issuer’s medium-term outlook remains strong, driven by industry trends and technological leadership. Our target price for MUI shares is $ 80 per share.
