Shares of Micron Technology, Inc. (NASDAQ:MU) are up 7% in after hours trading, after the company reported its fourth quarter and full-year results. For the quarter, Micron earned $0.37 in EPS on revenues of $3.6 billion, beating expectations of $0.33 in EPS and revenues of $3.56 billion. For the fiscal 2015, Micron Technology, Inc. (NASDAQ:MU) earned $2.47 per diluted share on revenues of $16.19 billion. Let’s take a closer look at the semiconductor company and see how the world’s greatest investors view it.
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“We are pleased to report Fiscal Year 2015 results that include revenue of $16.2 billion, $2.72 in non-GAAP earnings per share, and $2.3 billion in dilution management activities, including convert retirements and share repurchases. While fourth quarter results were impacted by continued weakness in the PC sector, we believe that memory industry fundamentals remain favorable over the long term,” Chief Executive Officer D. Mark Durcan commented.
PC sales have been weak this year as consumers eschew PC’s in favor of mobile devices. Research firm IDC expects worldwide PC shipments to fall by 8.7% in 2015 and ‘not stabilize until 2017’. The actual numbers may not be as bad as IDC expects, however, as several research firms recently upgraded PC-dependent semiconductor company Intel Corporation (NASDAQ:INTC), citing strong client business channel inventory checks. The recent launch of Windows 10 should increase PC sales due to pent up demand and the global economy is also still above sea-level as Europe and China eases and the American economy remains strong.
Of the around 730 funds we track, 79 funds owned $3.73 billion worth of Micron Technology, Inc. (NASDAQ:MU)’s shares (representing 18.30% of the float) on June 30, down from 100 funds and $6.96 billion on March 31 (see what hedge funds think about Micron). While hedge funds in aggregate are less optimistic, the elite funds are still fans of the company. David Einhorn‘s Greenlight Capital increased its position by 14% to 37.95 million shares, while David Shaw’s D. E. Shaw raised its stake by 58% to 9.01 million shares. Seth Klarman’s Baupost Group kept its holding the same at 19.71 million shares.
Einhorn increased his position because he still likes the long term fundamentals of the company. From Einhorn’s second quarter letter:
“It’s a cyclical business and, regrettably, we missed the turn of the cycle. Long production lead times make it difficult to match supply with demand, and when demand falls short (as it has recently), shortages can turn into surpluses. Prices (and profits) fell, and MU disappointed. MU also had manufacturing problems that will impact earnings for the next couple of quarters. With only three remaining players, the industry is behaving more rationally. Manufacturers are redirecting capacity away from computer DRAM to other segments, and we believe that the excess computer DRAM inventory created earlier this year is now being absorbed. Our assessment is that MU shares have fallen too far. Peak quarterly earnings last year were $1.04 and we expect the cyclical trough to be around $0.40 in the August quarter. At $18.84, the company trades at less than 12x annualized trough earnings and less than 5x prior peak earnings. We expect future cycles will have higher peaks and higher troughs, as the technology story for both DRAM and NAND (including 3D memory) is bright for the next several years. Our long-term outlook is that sometime in the next few years, MU (currently valued at $20 billion with $3.7 billion of trailing net income) will be worth more than NFLX (currently valued at $40 billion with $240 million of trailing net income). It’s a contrarian view, but we don’t think the movie is over.”
Chinese firm Tsinghua Unigroup’s $21 per share offer for Micron Technology has not helped the company’s stock. The shares are down 53% year-to-date as investors worry about falling DRAM average selling prices and dismiss Tsinghua Unigroup’s bid as untenable given the national security concerns. While the short term is painful, we’re bullish on Micron in the long term. The company occupies an enviable position as the leading memory producer and its earnings will grow after the cycle troughs.
Disclosure: None
