Micron Technology (NASDAQ:MU) Q2: Strong Sales, Provides Optimistic Guidance For Next Quarter

Jabin Bastian /
2022/03/29 4:13 pm EDT

Memory chips maker Micron (NYSE:MU) beat analyst expectations in Q2 FY2022 quarter, with revenue up 24.8% year on year to $7.78 billion. On top of that, guidance for next quarter's revenue was surprisingly good, being $8.7 billion at the midpoint, 6.57% above what analysts were expecting. Micron Technology made a GAAP profit of $2.26 billion, improving on its profit of $603 million, in the same quarter last year.

Is now the time to buy Micron Technology? Access our full analysis of the earnings results here, it's free.

Micron Technology (MU) Q2 FY2022 Highlights:

  • Revenue: $7.78 billion vs analyst estimates of $7.54 billion (3.24% beat)
  • EPS (non-GAAP): $2.14 vs analyst estimates of $1.98 (8.26% beat)
  • Revenue guidance for Q3 2022 is $8.7 billion at the midpoint, above analyst estimates of $8.16 billion
  • Free cash flow of $1.02 billion, up 53.2% from previous quarter
  • Inventory Days Outstanding: 119, up from 107 previous quarter
  • Gross Margin (GAAP): 47.2%, up from 26.4% same quarter last year

Founded in the basement of a Boise, Idaho dental office in 1978, Micron (NYSE:MU) is a leading provider of memory chips used in thousands of devices across mobile, data centers, industrial, consumer, and automotive markets.

The rapid growth in data generation and the need to support increases in processing power for everything from consumer devices to data center servers are driving the demand for memory chips. From the content delivery networks and edge computing to the cloud, data storage is a key component underpinning the global technology architecture. On top of that, secular growth drivers like machine learning and the boom in media-rich digital content are further accelerating the need for storage. Like all semiconductor segments, memory makers are highly cyclical, driven by supply and demand imbalances and exposure to consumer product cycles.

Sales Growth

Micron Technology's revenue growth over the last three years has been unimpressive, averaging 6.46% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $6.23 billion to $7.78 billion. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Micron Technology Total Revenue

This was a decent quarter for Micron Technology as revenues grew 24.8%, topping analyst estimates by 3.24%. This marks 8 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.

However, Micron Technology believes the growth is set to continue, and is guiding for revenue to grow 17.2% YoY next quarter, and Wall St analysts are estimating growth 19.7% over the next twelve months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

Micron Technology Inventory Days Outstanding

This quarter, Micron Technology’s inventory days came in at 119, 7 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from Micron Technology's Q2 Results

Sporting a market capitalization of $89.4 billion, more than $10.1 billion in cash and with positive free cash flow over the last twelve months, we're confident that Micron Technology has the resources it needs to pursue a high growth business strategy.

We were very impressed by the strong improvements in Micron Technology’s gross margin this quarter. And we were also excited to see that earnings outperformed Wall St’s expectations. On the other hand, it was less good to see the inventory levels increase. Zooming out, we think this was a good quarter that should have shareholders cheering. The company is up 2.76% on the results and currently trades at $84.45 per share.

Micron Technology may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.