No Surprises In Micron Technology's (NASDAQ:MU) Q2 Sales Numbers But Guidance Underwhelms

Radek Strnad /
2023/03/28 4:09 pm EDT
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Memory chips maker Micron (NYSE:MU) reported results in line with analyst expectations in Q2 FY2023 quarter, with revenue down 52.6% year on year to $3.69 billion. However, guidance for the next quarter was less impressive, coming in at $3.7 billion at the midpoint, being 1.37% below analyst estimates. Micron Technology made a GAAP loss of $2.31 billion, down on its profit of $2.26 billion, in the same quarter last year.

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Micron Technology (MU) Q2 FY2023 Highlights:

  • Revenue: $3.69 billion vs analyst estimates of $3.71 billion (small miss)
  • EPS (non-GAAP): -$1.91 vs analyst estimates of -$0.88
  • Revenue guidance for Q3 2023 is $3.7 billion at the midpoint, below analyst estimates of $3.75 billion
  • Free cash flow was negative $1.81 billion, compared to negative free cash flow of $1.53 billion in previous quarter
  • Inventory Days Outstanding: 151, down from 238 previous quarter
  • Gross Margin (GAAP): -32.7%, down from 47.2% 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 unremarkable, averaging 9.05% annually. Last year the quarterly revenue declined from $7.79 billion to $3.69 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 difficult quarter for Micron Technology, with revenue declining 52.6%, missing analyst estimates by 0.37%.

Micron Technology's revenue growth has decelerated for the last three quarters and the company expects the decline to continue with next quarter guiding to a 57.2% year on year decline, while analysts are estimating a NTM revenue decline of 5.57%.

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 151, 25 days above the five year average, suggesting that despite the recent decrease the inventory levels are still higher than what we used to see in the past.

Key Takeaways from Micron Technology's Q2 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 $65.2 billion and more than $10.8 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

We were very impressed by the strong improvements in Micron Technology’s inventory levels. On the other hand, it was less good to see that the revenue is in decline and the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results could have been better. The company is flat on the results and currently trades at $59.2 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.