Micron Technology's (NASDAQ:MU) Q4 Sales Top Estimates, But Next Quarter's Guide Is Mixed

Max Juang /
2023/09/27 4:10 pm EDT

Memory chips maker Micron (NYSE:MU) reported results ahead of analysts' expectations in Q4 FY2023, with revenue down 39.6% year on year to $4.01 billion. Guidance for next quarter's revenue was also optimistic at $4.4 billion at the midpoint, 4.49% above analysts' estimates. Turning to EPS, Micron Technology made a non-GAAP loss of $1.07 per share, down from its profit of $1.45 per share in the same quarter last year.

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Micron Technology (MU) Q4 FY2023 Highlights:

  • Revenue: $4.01 billion vs analyst estimates of $3.93 billion (2.15% beat)
  • EPS (non-GAAP): -$1.07 vs analyst estimates of -$1.18
  • Revenue Guidance for Q1 2024 is $4.4 billion at the midpoint, above analyst estimates of $4.21 billion
  • EPS (non-GAAP) Guidance for Q1 2024 is ($1.07) at the midpoint, below analyst estimates of ($0.92)
  • Free Cash Flow was -$758 million compared to -$1.35 billion in the previous quarter
  • Inventory Days Outstanding: 172, up from 170 in the previous quarter
  • Gross Margin (GAAP): -10.8%, down from 39.5% in the same quarter last year

“During fiscal 2023, amid a challenging environment for the memory and storage industry, Micron sustained technology leadership, launched a significant number of leading-edge products, and took decisive actions on supply and cost,” said Micron Technology President and CEO Sanjay Mehrotra. “Our 2023 performance positions us well as a market recovery takes shape in 2024, driven by increasing demand and disciplined supply."

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.

Memory Semiconductors

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 has been declining over the last three years, dropping by 2.13% on average per year. This quarter, its revenue declined from $6.64 billion in the same quarter last year to $4.01 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

Even though Micron Technology surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 39.6% year on year. This could mean that the current downcycle is deepening.

Micron Technology looks like it's on the cusp of a rebound, as it's guiding to 7.71% year-on-year revenue growth for the next quarter. Analysts seem to agree as consesus estimates call for 31.2% growth over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity 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 DIO came in at 172, which is 38 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from Micron Technology's Q4 Results

Although Micron Technology, which has a market capitalization of $74.4 billion, has been burning cash over the last 12 months, its more than $9.59 billion in cash on hand gives it the flexibility to continue prioritizing growth over profitability.

Revenue and non-GAAP EPS both beat analysts' expectations this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. On the other hand, free cash flow missed. Non-GAAP EPS guidance for next quarter was below expectations, driven by a weaker-than-expected outlook for gross margins. On an absolute basis, Micron's margins are still falling year on year and in negative territory, which is illustrative of the "challenging environment for the memory and storage industry" called out by management. Zooming out, we think this was mixed quarter, with the outlook below revenue as a key negative. The market was likely expecting more, and the stock is down 1.1% after reporting, trading at $67.5 per share.

So should you invest in Micron Technology right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here.

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