Micron Swings to Profit in First Quarter

Micron Technology (MU), one of the largest memory companies, reported first quarter of fiscal year 2010 earnings that beat consensus estimates by 15 cents. Revenue beat the consensus by 8.7%.

Revenue

Total revenue was $1.74 billion, up 33.6% sequentially and 24.1% year over year. The company saw broad-based strength across all served end-markets, with computing growing the strongest (up over 80% sequentially), followed by mobile (up over 60%), networking (up around 30%) and server (up 25%). Memory generated 94% of Q1 revenue, with the balance coming from Imaging.

Revenue by Product Line

Memory products drove the revenue growth in the last quarter, increasing 38.4% sequentially. DRAM memory generated 63% of revenue, NAND flash 35% and royalties the balance.

DRAM sales were particularly strong, increasing 50% sequentially. DRAM revenue was driven by a 25% increase in shipments and 21% increase in the average selling price (ASP).

NAND revenue also grew (up 21% sequentially), driven by a 16% increase in shipments and 5% increase in ASP.

Revenue from Royalty and Fees was flattish sequentially at around $35 million.

Imaging revenue declined 12.2% sequentially, partially offsetting the strength in memory.

On a year-over-year basis, revenue from Memory products increased 33.6%, again partially offset by the 40.0% decline in Imaging.

The company does not provide information regarding geographical distribution of revenue.

Profit Margins

The pro forma gross profit margin for the quarter was 25.5%, compared to 13.1% in the Aug 2009 quarter and -31.7% in the Nov quarter of 2008. While stronger ASPs contributed to the higher gross profit, lower DRAM production costs also contributed, partially offset by higher NAND production costs. The operating expenses of $243 million were higher than the previous quarter’s $207 million.

The operating profit margin was 11.5%, up 1,434 bps sequentially from -2.8%. The 1,240 bp decline in COGS (as a percentage of sales) was the primary reason for the higher profit margin, although the 280 bp decline in R&D as a percentage of sales and 72 bp decline in SG&A as a percentage of sales also contributed.

Net Profit

On a pro forma basis, MU generated a net profit of $218 million, or a 12.5% net profit margin compared to -$56 million, or -4.3% in the previous quarter and -$783 million, or -55.8% in the same quarter last year.

The fully diluted pro forma earnings per share was $0.22, compared to -$0.07 in the Aug quarter and -$1.01 in the year-ago quarter. Our pro forma estimate excludes restructuring charges and equity in net losses of Inotera in the last quarter. Our pro forma calculations may differ from management’s presentation due to the inclusion/exclusion of some items that were not considered by management.

On a fully diluted GAAP basis, the company recorded a net profit of $204 million ($0.20 per share) compared to -$99 million (-$0.12 per share) in the previous quarter and -$718 million (-$0.93 per share) in the prior-year quarter.

Balance Sheet

Inventories were increased 5.1% in the quarter to meet the growing demand. DSOs increased a couple of days to 57. The cash and investments balance at quarter-end was of $1.6 billion, up $80 million during the quarter. Cash generated from operations was $326 million and capex of $62 million, netting free cash flow of $264 million. At quarter-end, Micron had $2.1 billion in long term debt, amounting to a net debt balance of $578 million. However, the debt-cap ratio was still low at 29.2%.