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Micron Stock Surges After Q1 Earnings Beat; Sees Chip Shortage Easing Next Year

Micron said it sees 'gradual improvement' in chip sector shortages next year following stronger-than-expected first quarter earnings and a solid near-term outlook.

Micron Technology  (MU) - Get Micron Technology, Inc. Report shares surged higher Tuesday after the chipmaker posted stronger-than-expected first quarter earnings and a solid near-term outlook.

Micron, which makes chips across an array of sectors, including PCs, mobile phones, data centers and autos, said supply chain issues should start to ease in the coming months, helping current quarter revenues rise to around $7.5 billion, plus or minus $200 million, a tally which topped analysts' forecasts. with adjusted earnings in the region of $2.16 per share..

For the three months ending on December 2, the group's fiscal first quarter, Micron earned an adjusted $2.16 per share on sales of $7.69 billion, which were down 7% from the previous quarter but ahead of Street estimates. DRAM revenues were up 38% from last year to $5.56 billion, while NAND revenues jumped 19% to $1.9 billion. 

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"On the customer side, we are seeing greater commitment and collaboration on supply planning, including the use of long-term agreements," CEO Sanjay Mehrotra told investors on a conference call late Monday. "Today, over 75% of our revenue comes from volume-based annual agreements, a significant increase from five years ago when they accounted for around 10% of our revenue."

"On the supplier side, we have entered into strategic agreements to secure supply of certain components that we need to manufacture our products," he added. "As a result of these agreements, the current tight supply of these components is expected to gradually improve for us throughout calendar 2022."

Micron shares were marked 9.6% higher in early trading Tuesday to change hands at $89.50 each, a move that would extend the stock's six-month gain to around 16.6%.

"While not easy in a very competitive and cyclical memory industry, Micron continues to demonstrate the strides it has taken over the last few years to become a structurally more profitable company, as evidenced by various key metrics on a cross-cyclical basis," said BMO Capital Markets analyst Ambrish Srivastava, who lifted hits price target on the stock to $115, with an 'outperform' rating, following last night's earnings. 

"While results were roughly in line, and guidance is in line with our expectations, it is higher than consensus and higher than the buy side's expectations," he added.