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B.A. in economics and MBA from top 10 business school. I have over 10 years of M&A / corporate finance experience. Currently head the New York Shock Exchange, a youth mentorship program that teaches investment management skills and ... more

Micron: Is The Catbird Seat Heating Up?

Date: Saturday, March 24, 2018 1:25 PM EST

Micron (MU) reported Q2 revenue of $7.35 billion and eps of $2.82. The company beat on revenue by $70 million and beat on eps by $0.08. MU fell nearly 8% after earnings. I had the following takeaways on the quarter.

Top Line Growth Remains Gaudy

Last quarter Micron grew total revenue by 71% Y/Y. It followed up that performance  this quarter with revenue growth of 58% Y/Y and 8% sequentially. The tremendous leverage driven by higher sales are helping the bottom line. Gross margin improved to 58% from 37% in the year earlier period. This double-impact caused gross profit on a dollar basis to more than double.

Revenue from the Compute & Networking Business Unit ("CPBNU") was up over 90%, due to increases in average selling prices ("asp") for products sold into the client market, growth in the cloud driven by out-sized increases in DRAM content per server, and increased sales into the enterprise market. The Storage Business Unit's ("SBNU") sales of Trade NAND products was up 45% Y/Y but fell off 9% sequentially; asp for NAND component sales fell, partially offset by increases in SSD sales. Meanwhile, the Mobile Business Unit ("MBU") revenue was up 20% Y/Y driven by Micron's low-power DRAM product and sales of mobile DRAM into smartphones.

On a product basis DRAM revenue was up 14% Q/Q and 76% Y/Y. ASP and gigabits sold increased Y/Y in the low 40% range, and low 20% range, respectively; they also grew sequentially. Trade NAND revenue was up 28% Y/Y, but fell 3% sequentially. ASP decreased Y/Y in the high single digits while gigabits sold increased in the low 40% range. ASP also fell sequentially in the mid-teens range. According to management, the ASP decline was caused by a mix shift in the company's SBU NAND components. This could be a trend to watch going forward.

As I noted Thursday pre-earnings, Micron Is Sitting In The Catbird Seat. The importance of the cloud and gaming segments is creating explosive demand for memory and storage capacity. The secular shift from the previous PC-based market to the current dealer market is amplifying that demand. Micron is poised to exploit this secular shift. According to management, memory is also making possible applications like artificial intelligence and virtual reality:

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