Micron Technology, Inc. (NASDAQ:MU) has rallied on the back of improving fundamentals of the memory industry, leading to positive investor sentiment. However, the memory maker is yet to report a streak of consistent results, and this is why next week is going to be crucial for Micron when it releases second-quarter results. Let’s see what is expected of Micron Technology, Inc. (NASDAQ:MU), and whether it could deliver.
On revenue
Analysts, according to Yahoo! Finance, expect Micron to deliver $1.91 billion in revenue, 5% lower than the year-ago quarter. If we are to go by Micron’s track record, it has missed the top line estimate three times in the last five quarterly reports. But this time, revenue might end up on the right side of the line, and there are some good reasons why this might happen.
Firstly, consolidation in the DRAM (dynamic random access memory) industry has led to an improvement in average selling prices. According to market research firm IC Insights, the oligopolistic nature of the DRAM industry led to a 13% jump in average selling prices in January as compared to last year. DRAM sales increased 21% in January 2013.
Since Micron Technology, Inc. (NASDAQ:MU) is a part of the DRAM triumvirate, which includes Samsung and Hynix, a jump in sales along with improved pricing will undoubtedly benefit it since DRAM sales account for around 40% of total revenue. But that’s not all. Micron’s NAND business, which accounted for 44% of total revenue in the previous fiscal year, is probably in for an even better performance.
Average selling prices of NAND flash were up almost 40% in January as against the year-ago period. This, coupled with a 24% jump in NAND sales, should help Micron in parking its revenue beyond the Street estimate.
On earnings
Micron’s earnings record has been simply woeful the last five times it has posted earnings. This is not surprising, since the company had to contend with declining prices of both NAND and DRAM for the better part of that period. But with things looking up in both segments now, Micron might buck the trend this time.
Better sales and better pricing should lead to better margins, and a better bottom line performance. However, whether the bottom line improvement would be enough to satisfy analysts, who expect Micron Technology, Inc. (NASDAQ:MU) to lose $0.20 a share, remains to be seen.
Outlook
Improving trends in both DRAM and NAND pricing are tailwinds which should aid Micron going forward. Moreover, the company’s aggressive investments in solid-state drives and NAND flash are another positive. Micron is on the verge of acquiring Elpida, a move which would improve its standing in the DRAM market and might as well help it land lucrative deals from the likes of Apple Inc. (NASDAQ:AAPL).
The Apple Inc. (NASDAQ:AAPL)-Samsung war has led Apple Inc. (NASDAQ:AAPL) to look to other component suppliers, and Elpida was one of the beneficiaries, winning a contract for supplying memory for the iPhone and the iPad. Apple Inc. (NASDAQ:AAPL) hadn’t exclusively used Samsung as the DRAM supplier for the latest iPhone, which means there’s opportunity for Micron to benefit from the rift between the two behemoths.
Moreover, Micron Technology, Inc. (NASDAQ:MU)’s progress in SSD’s is noteworthy. SSD sales had increased 20% in the previous quarter, and Micron is intent on churning out cutting-edge products, and a strategic partnership with the likes of Intel Corporation (NASDAQ:INTC) should help. Both companies have an agreement known as IM Flash under which they would manufacture NAND flash memory.
The partnership should result in some solid products going forward, and the signs are already emerging. For instance, Intel had released a 20nm, 240GB, solid-state drive last year, developed in association with Micron. It was the first time Intel Corporation (NASDAQ:INTC) launched an SSD with cost of storage being below $1/GB, and it won’t be surprising if the chip giant continues to get better along with Micron in its SSD venture.
The takeaway
Micron Technology, Inc. (NASDAQ:MU) has a lot going for it, but whether or not it will be able to carry forward its momentum depends on how the next earnings report turns out to be. There are some solid indicators which suggest that Micron won’t disappoint. Check back again in a week’s time to check how Micron performed, and where it’s headed going forward.
The article This Company Seems to be on Course for an Earnings Beat originally appeared on Fool.com and is written by Harsh Chauhan.
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