Micron Beats by a Nickel

The chipmaker boosts profit by 200%.
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Updated from 4:44 p.m. EST

After back-to-back misses,

Micron Technology

(MU) - Get Report

finally came through with an upside surprise.

The Boise, Idaho-based chipmaker said Thursday that it boosted its profit by 200% in its fiscal first quarter, besting Wall Street expectations by 5 cents.

The company said it experienced strong demand across all of its businesses during the quarter, as PC vendors bought more DRAM in anticipation of

Microsoft's

(MSFT) - Get Report

forthcoming Vista operating system, and as cell phone companies moved to higher-resolution image sensors in handset cameras.

The result was a sharp uptick in Micron's gross margins, which reached 31%, vs. 24% during the preceding quarter.

Investors who had beat the stock down in recent weeks expecting the worst quickly bid the company's shares up about 4%, or 53 cents, to $14.02 in extended trading.

"We are on the front edge of feeling the Vista impact and this will layer out throughout 2007," Worldwide Sales VP Mike Sadler said in a postearnings conference call, adding that he expects the average Vista PC to ship with 2 gigabytes of DRAM memory.

The average price of DRAM increased 15% quarter over quarter, said Micron executives, who acknowledged that they are not able to meet all the demand.

Micron has moved to diversify from the volatile commodity DRAM market. The company said that sales of CMOS image sensors -- the chips used in cell phone cameras -- and NAND flash each accounted for 15% of the $1.58 billion in total sales during the fiscal first quarter.

The chipmaker said it earned $192 million, or 25 cents a share, in the three months ended Nov. 30. At this time last year, Micron earned $63 million, or 9 cents a share.

Analysts polled by Thomson First Call were looking for a profit of 20 cents on $1.64 billion in sales.

Micron said it expects $4 billion in capital expenditures in 2007, as it ramps several new chip fabrication facilities slated to produce DRAM and NAND flash memory. Micron, which has a NAND flash manufacturing joint venture with

Intel

(INTEL)

, said $1.5 billion of the capital expenditures will come from joint-venture partners.

None of Micron's current output of flash chips is supplying its Lexar subsidiary, which it acquired for $850 million in June.

Executives said the company is working aggressively to strengthen Lexar's retail presence, but noted that the priority would be on operating margins rather than top-line growth, given the current glut of NAND chips in the market and the consequent plunge of average selling prices.

Micron declined to say when it expected its NAND business to break even, but said that it was exceeding its cost-reduction targets.

As usual, Micron did not provide any specific financial guidance for its current quarter, although the company said that selling, general and administrative costs could rise to $250 million this quarter as its ramps production at new fabs.

And management signaled that the company's image-sensor business was entering a challenging period, as customer inventory piled up and seasonal demand for cell phones slows in the coming months.