Chipmaker Micron Technology, Inc. (NASDAQ:MU) put doubts about a resurgence in its business to rest with a solid second-quarter report, and it wasn’t at all surprising. I had expected Micron to trump estimates, which it did comfortably if we eliminate losses incurred as a result of currency hedges, according to RBC Capital Markets analyst Doug Freedman.
Thus, with so much optimism around the stock, it would make sense to take a deep breath and see how Micron could make investors wealthier in 2013. But before that, let’s take a look at the second-quarter performance in brief.
Solid all the way
Micron Technology, Inc. (NASDAQ:MU) posted revenue of $2.1 billion in the quarter, slightly up from $2 billion in the prior-year period. Net loss came in at $286 million, or $0.28 per diluted share, up from $282 million ($0.29 per diluted share) in the year-ago period. However, excluding a loss of $120 million on currency hedges, which were a result of the planned acquisitions of Elpida and Rexchip, Micron’s loss would have been lesser than last year.
More importantly, the company exhibited solid gross margin improvement, driven by a decline in manufacturing costs. Micron’s gross margin of 18% in the quarter was way better than the 12% it had reported in the previous one. The company saw better revenue from both DRAM and NAND segments, driven by higher volumes and stable pricing. Going forward, there are a number of factors which could take Micron to the next level.
The catalysts
Micron Technology, Inc. (NASDAQ:MU) is counting upon a number of trends to get better in the future, and higher sales of solid-state drives (SSD) are one of them. The company has witnessed rapid expansion of its SSD business. SSD shipments jumped more than 40% in the second quarter on a sequential basis, and things should get even better from here.
Micron has started shipping its enterprise storage products, and is making further investments in order to benefit from the proliferation of SSDs. Apart from SSDs, Micron is counting on increased capital spending by telecom companies to drive its DRAM business. DRAM bit shipments in networking constitute around 17% of the company’s top line, and grew 20% on a sequential basis in the previous quarter.
Going forward, this business should gain further traction, as carriers like AT&T Inc. (NYSE:T) upgrade their networks. Late last year, AT&T Inc. (NYSE:T) decided to step on the gas for rolling out its next generation networks. The carrier would spend $14 billion for enhancing its wireless and wireline broadband networks, while total capex would be $22 billion a year for the next three years. Micron expects such optimism to drive its DRAM networking revenue up one notch, while the build out of data centers would be another tailwind.
Strong pricing and demand
Micron has witnessed strength in DRAM prices this year, and there are indications that this strength will continue. Tight channel inventory and demand-supply balance are the reasons why management is confident of further upswing in DRAM prices. Moreover, Micron Technology, Inc. (NASDAQ:MU) is highly focused on increasing its market share in the mobile DRAM segment, and now counts “two of the top five smartphone makers” as clients according to President Mark Adams.
Micron is anticipating solid growth in the mobile DRAM market, and the acquisition of Elpida might lead to even better days. As Fool analyst Anders Bylund had mentioned last year, Elpida had landed the contract for supplying iPhone and iPad memory to Apple Inc. (NASDAQ:AAPL). Moreover, Apple had used other suppliers apart from Samsung for DRAM in the latest iPhone. As the Cupertino-based behemoth looks to reduce its reliance upon Samsung, it won’t come as a surprise if Micron gets a deal from Apple in the future.
Apart from DRAM, Micron’s NAND business is also doing pretty well now. Explosive growth of mobile devices has led to great demand for NAND flash. Micron expects 40% growth in smartphone shipments this year, which is the reason behind management’s optimism regarding better demand and stable pricing.
The bottom line
After struggling last year, things appear to be falling in place for Micron Technology, Inc. (NASDAQ:MU). The company expects its end markets to push demand for its products higher, while better demand-supply balance should support DRAM and NAND prices. Keeping these factors in mind, I expect Micron to get even better as the year progresses.
The article This Resurgent Stock Is Screaming for Attention, Are You Listening? originally appeared on Fool.com and is written by Harsh Chauhan.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
