Micron Technology's (NASDAQ:MU) Q3 Sales Top Estimates But Quarterly Guidance Underwhelms

Anthony Lee /
2023/06/28 4:11 pm EDT

Memory chips maker Micron (NYSE:MU) reported Q3 FY2023 results topping analyst expectations, with revenue down 56.6% year on year to $3.75 billion. The company expects that next quarter's revenue would be around $3.9 billion, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Micron Technology made a GAAP loss of $1.9 billion, down on its profit of $2.63 billion, in the same quarter last year.

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Micron Technology (MU) Q3 FY2023 Highlights:

  • Revenue: $3.75 billion vs analyst estimates of $3.68 billion (2.05% beat)
  • EPS (non-GAAP): -$1.43 vs analyst estimates of -$1.57
  • Revenue guidance for Q4 2023 is $3.9 billion at the midpoint, below analyst estimates of $3.94 billion
  • Free cash flow was negative $1.36 billion, compared to negative free cash flow of $1.81 billion in previous quarter
  • Inventory Days Outstanding: 170, up from 151 previous quarter
  • Gross Margin (GAAP): -17.8%, down from 46.7% same quarter last year

“Micron delivered fiscal third quarter revenue, gross margin, and EPS all above the midpoint of the guidance range,” said Micron Technology President and CEO Sanjay Mehrotra. “We believe that the memory industry has passed its trough in revenue, and we expect margins to improve as industry supply-demand balance is gradually restored. The recent Cyberspace Administration of China (“CAC”) decision is a significant headwind that is impacting our outlook and slowing our recovery. Longer-term, Micron’s technology leadership, product portfolio, and operational excellence continues to strengthen our competitive positioning across diverse growth markets, including AI and memory-centric computing.”

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 3.2% annually. Last year the quarterly revenue declined from $8.64 billion to $3.75 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

Despite Micron Technology revenues beating analyst estimates, this was still a slow quarter with a 56.6% revenue decline.

Micron Technology's revenue growth has slowed for the last three quarters and the company expects growth to turn negative next quarter guiding to a 41.3% year on year decline, but analysts think it will recover next year, as consensus NTM revenues are forecast to grow 11.9%.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

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 170, 40 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 Q3 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Micron Technology’s balance sheet, but we note that with a market capitalization of $73.1 billion and more than $10.4 billion in cash, the company has the capacity to continue to prioritise growth over profitability. 

We were impressed that Micron Technology outperformed analysts’ revenue and earnings expectations this quarter. On the other hand, pretty significant deterioration in gross and operating margins were major negatives. The company's CEO did say that "the memory industry has passed its trough in revenue, and we expect margins to improve as industry supply-demand balance is gradually restored." Additionally, the CEO mentioned that "the recent Cyberspace Administration of China (“CAC”) decision is a significant headwind that is impacting our outlook and slowing our recovery." Overall, this quarter's results were mixed, although the immediate stock reaction signals that there was even more fear or lower expectations around this quarter's results. The company is up 3.89% on the results and currently trades at $69.72 per share.

Micron Technology may have had a tough quarter, but does that actually create an opportunity to 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.