MU Preview: Loss Could Be Deeper Than Expected

Micron Technology (MU - commentary - Cramer's Take) will be reporting results for its first quarter after the close tomorrow with a conference call at 4:30 p.m. EST. Current Street consensus is for revenue of $1.34 billion (down 13% year over year and 8% quarter over quarter) and a loss per share of 43 cents.

In the prior quarter, revenue was $1.45 billion (up 1% year over year but down 3% quarter over quarter) with a loss per share of 45 cents. The gross margin was negative after a $205 million inventory writedown, and the operating margin was negative for the seventh consecutive quarter.

Cash from operations remained strong at $240 million. The company's cash accounts declined about $220 million, to about $1.36 billion. Accounts receivable increased about $40 million, with days sales outstanding up four days, to 64 days. Inventory declined $150 million, largely due to the writedown, with days of inventory down 13 days, to 77 days.

Excluding the inventory writedown, the DRAM gross margin actually improved again in the quarter, as ASPs stayed relatively flat and cost reductions exceeded 5%. The NAND gross margin continued to be negative despite cost reductions of approximately 15% in the quarter, but ASPs declined about 20% in the same period.

Micron doesn't give guidance, so the Street estimates are largely guesstimates and frequently miss by quite a bit. The company did indicate, however, that it expects sequential bit growth for the first fiscal quarter to be in the high-teens for DRAM and around 15% for NAND flash. At the time of the last call, the company anticipated ASPs to be down about 15% quarter over quarter for DRAM and down about 30% to 35% quarter over quarter for NAND.

Despite the prognostications on pricing, both have turned out to be incorrect, with contract prices for both DRAM and NAND down greater amounts based upon data from DRAMeXchange. Consequently, I think the loss per share will be far greater than current consensus and we may see another inventory writedown as well.

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At the time of publication, Faulkner was long Micron Technology stock and The Telecom Connection model portfolio was long Micron calls.

Bob Faulkner has been in the investment business for 18 years with an exclusive focus on technology stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Faulkner appreciates your feedback; click here to send him an email.

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