Micron's Profit Surprises

Analysts had expected a loss.
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Updated from 5:23 p.m. EDT

Micron Technology

(MU) - Get Report

posted an unexpected profit during its fourth quarter due to strong DRAM chip demand and image sensor sales.

"We're right in the middle of what we expected would be a seasonally strong demand period," said Mike Sadler, Micron's vice president of sales. "Things are playing out as we expected."

Shares of Micron jumped almost 6% in after-hours trading to $12.90 on Instinet.

Micron earned $43 million, or 7 cents a share, on sales of $1.26 billion. During the same quarter last year, the memory chipmaker earned $93.5 million, or 14 cents a share, on sales of $1.19 billion.

While that was a shrinking of profit, analysts had expected a loss of 8 cents a share on sales of $1.17 billion, on average, according to Thomson First Call. The bottom-line estimates ranged from a loss of 20 cents a share to earnings of 4 cents a share. This wide range, typical for Micron, is due to the significant and often unpredictable fluctuations of DRAM prices.

Micron's average sales price for its DRAM chips increased 3% sequentially for the quarter, and sales based on DRAM megabits increased 10%. DRAM sales revenue rose 15% and image sensor sales increased 40%. Noncommodity DRAM products, which generally command higher prices and better margins, accounted for 30% of total sales.

Overall, Micron said megabit production increased 15% sequentially, compared with an earlier expectation for high-single digit bit production growth.

The fourth-quarter performance marked a significant improvement for the Boise, Idaho-based company from

its third quarter. Then, the company logged a 30% drop in memory prices that ranked among its most severe ever. This price drop torpedoed gross margins to 8.2%. For the fourth quarter, margins jumped back up to a more-typical level of 22.4%.

Micron executives said late Thursday that current DRAM demand "feels pretty good."

Also, Micron became one of the first chipmakers to announce its capital-expenditure budgets for 2006. The company said it expects to spend between $1 billion and $1.5 billion in the coming 12 months compared with the $1.3 billion it spent in 2005.