Earnings Preview: Micron Tech (MU)

Micron Tech (MU-NYSE) will be reporting earnings tomorrow, and the largest U.S. maker of memory chips’ numbers will hopefully shed some light on the state of the DRAM and NAND markets.  Spot prices for the two have been improving in the past month, but some analysts have questioned whether this was due to an actual demand pickup or simply the big players intentionally cutting back on production.   

Micron shareholders are certainly hoping and ready for some good news, as the stock is down more than 20% in the last year, and off nearly 35% from its peak in September ’06.  The timing of Micron’s capacity increase this year couldn’t have gone much worse, as they already warned shareholders in February that memory prices in the current qtr would be down 30% to 40% sequentially amidst a huge supply glut for both flash and DRAM.   

A half-dozen analysts have revised their estimates downward in the past month, pushing the current consensus EPS estimate to -$0.01 to $0.01 from source to source with a huge range on revenues of $1.45 to $1.47 Billion.  The most recent numbers coming in have been even lower, so the whispers are centering on a loss of a few pennies per share.   

Basically, everyone is expecting an awful quarter, and the outlook (another slight loss on estimated 2% sequential declines) provided tomorrow will be the biggest news, along with current book/bill and inventory levels.  If management makes any definitive statements about “stabilizing pricing environments”, that could be enough to push the stock out of its recent basing in the $11.50 – $12.00 range.  The stock has received several recent upgrades based on hopes for pricing improvement, and also citing the infamous "attractive valuations."  As of 1:30 EST, MU stock was up .58% on the day to $12.20. 

Some on the street are saying that Samsung is having problems with its next-generation 50 nm NAND fabs, which could help Micron establish a foothold in future contract negotiations and unwind any excess inventory levels picked up this quarter.  Micron has production up and running for 50 nm memory, and is building a new $250 million facility in China.  With new products like the iPhone and others on the horizon, the demand side of the picture could be improving or at least stable into the summer.  The positive secular trends for flash certainly seem intact (even if pricing does not), at least until 25nm processes threaten to re-write the way flash is produced 5 years from now.   

Other related stocks to watch tomorrow include SanDisk (SNDK-NASDAQ) and Qimonda AG (QI-NYSE), and on a slow week for big market news the semi group as a whole might echo any noise made by Micron.   

Ryan Barnes
April 3, 2007

Ryan Barnes can be reached at [email protected]; he does not own securities in the companies he covers.