Chip maker Micron Technology, Inc. (NASDAQ:MU) has been on fire this year as shares have more than doubled. The stock’s resurgence this year has been helped by improving fundamentals of the DRAM (dynamic random access memory) and NAND markets while a terrific earnings report earlier this year in March ensured that the rally didn’t lose steam.
As such, the upcoming third-quarter earnings report next week and the accompanying outlook will be of great importance if Micron is to continue its blazing run. Let’s see what’s expected of Micron Technology, Inc. (NASDAQ:MU) and if it can upstage analyst expectations.
On revenue
Analysts, according to Yahoo! Finance, expect Micron Technology, Inc. (NASDAQ:MU) to post revenue of $2.22 billion, up 2.4% from last year. Improving pricing trends along with controlled supply and improving demand should continue to support prices of DRAM and NAND, and as such, help Micron at least meet consensus estimates. But then, the cues from other players in the industry have been positive and it won’t be surprising if Micron beats the revenue estimate.
For instance, according to DRAMExchange, DRAM pricing continued to trend higher in April, while DRAM maker Inotera witnessed a 20% revenue jump in revenue in May and the company expects to post a profit in the second quarter after thirteen consecutive quarterly losses, according to Digitimes.
Micron Technology, Inc. (NASDAQ:MU), along with others in the industry, has been keeping supply on a leash and as such, providing support to prices, and this should impact revenue positively. Also, burgeoning demand for mobile devices should continue to support the company’s NAND and mobile DRAM businesses. Like DRAM, even NAND prices have risen this year as demand is probably exceeding supply if we are to take a look at a few industry trends (more on this later).
Thus, given the underlying fundamentals of NAND and DRAM pricing, I won’t be surprised if Micron beats revenue estimates.
On earnings
Analysts are expecting Micron to post a profit this time, with the bottom line estimate pegged at $0.01, a far cry from last year’s loss of $0.32 a share. Analysts seem to be quite bullish on Micron Technology, Inc. (NASDAQ:MU)’s bottom line performance this time, and the company might even satisfy estimates.
Micron had missed on the bottom line last time, posting a loss, but it would have beaten estimates had it not been for a $120 million loss due to currency hedges, as reported by RBC Capital Markets.
Micron has a tainted history on the bottom line, missing estimates by wide margins in the last four quarters, but this time, we might see a reversal of fortunes. Strong pricing coupled with solid demand and constrained inventory had pushed up the company’s gross margin to 18% in the second quarter, up from 12% in the one before it.
Lower manufacturing costs had also played a part in this solid improvement, and as the trends in the industry are still the same as last time and improving further, there is a good chance that Micron Technology, Inc. (NASDAQ:MU) would post a profit.
On outlook
Micron doesn’t provide an outlook per se, but a lot depends on management’s commentary, which was positive last time and there is a high chance the status quo will be maintained. Firstly, the strength in pricing of its products should continue to inspire confidence, as Micron itself had forecasted improvements throughout this year and the next due to limited supply.
