Micron Sales Exceed Estimates as Cuts in Supply Support Prices

Apr 04, 2014 12:01 am ET

April 4 (Bloomberg) -- Micron Technology Inc., the largest U.S. maker of memory chips, reported fiscal second-quarter sales that beat analysts’ estimates as limited supply bolstered prices amid lackluster computer and phone demand.

Net income in the period that ended Feb. 27 was $731 million, or 61 cents a share, compared with a loss of $286 million, or 28 cents, a year earlier, the Boise, Idaho-based company said in a statement yesterday. Revenue almost doubled to $4.11 billion. That compares with an average analyst projection for a profit of 59 cents on sales of $3.99 billion, according to estimates compiled by Bloomberg.

Micron, which has been seeking to consolidate the industry and make it less susceptible to supply gluts, acquired Japanese rival Elpida Memory Inc. last year. While investors have fueled a rally that has more than doubled Micron’s shares in the past year, more evidence is needed on the company’s ability to remain profitable in periods of weak demand, according to Betsy Van Hees, an analyst at Wedbush Securities in San Francisco.

“Contract pricing is starting to come down,” said Van Hees, who recommends buying the stock. “It needs to come down in a fair and orderly fashion where average selling price declines will not outpace cost declines. That will be the true test of whether the vicious cycle has been broken.”

The shares of Micron, which more than tripled in 2013, rose as much as 4.8 percent in extended trading. The stock declined 1.4 percent to $24 at yesterday’s close in New York. Micron was the best performer in the Philadelphia Semiconductor Index in 2013.

‘Pretty Good’

Even with the return to production of a Chinese plant owned by SK Hynix Inc. that was damaged by fire and continuing declines in personal-computer shipments, the market for computing memory remains strong, Mark Adams, Micron’s president, said.

“It’s a pretty good time in memory right now,” he said. “This type of performance for the company has been better than we’ve had in the last decade.”

Micron is the largest remaining U.S. manufacturer of dynamic random access memory chips, or DRAM, semiconductors that provide the main memory in PCs. That market has been hit by the first consecutive annual decline in its history as consumers increasingly embrace smartphones and tablets.

More Memory

The Elpida purchase brought Micron a bigger chunk of the DRAM market to help it gain scale and provide more of a return for its technology investments. It also added production of a type of DRAM used in smartphones, which require less power- hungry chips. Removing Elpida’s independence also limits the number of companies building new plants, and curtails most of the industry’s output to just three companies: Samsung Electronics Co., SK Hynix and Micron.

The U.S. chipmaker also makes Nand flash memory chips, semiconductors that are used for data storage in mobile devices. Those chips are also increasingly making their way into computers in the form of solid-state drives, or SSD, which are replacing hard disks made of spinning magnetic platters.

SSDs need cheaper component prices before they become more widely used, said Wedbush Morgan’s Van Hees.