No Surprises In Micron Technology's (NASDAQ:MU) Q3 Sales Numbers But Quarterly Guidance Underwhelms

Radek Strnad /
2022/06/30 4:21 pm EDT
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Memory chips maker Micron (NYSE:MU) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue up 16.4% year on year to $8.64 billion. Guidance for the next quarter missed analyst expectations with revenues guided to $7.2 billion at the midpoint, or 21.1% below analyst estimates. Micron Technology made a GAAP profit of $2.62 billion, improving on its profit of $1.73 billion, 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) Q3 FY2022 Highlights:

  • Revenue: $8.64 billion vs analyst estimates of $8.64 billion (in line)
  • EPS (non-GAAP): $2.59 vs analyst estimates of $2.44 (6.09% beat)
  • Revenue guidance for Q4 2022 is $7.2 billion at the midpoint, below analyst estimates of $9.13 billion
  • Free cash flow of $1.31 billion, up 27.4% from previous quarter
  • Inventory Days Outstanding: 111, down from 119 previous quarter
  • Gross Margin (GAAP): 46.6%, up from 42.1% same quarter last year

“Micron delivered record revenue in the fiscal third quarter driven by our team’s excellent execution across technology, products and manufacturing,” said Micron Technology President and CEO Sanjay Mehrotra.

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 11% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $7.42 billion to $8.64 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 reporting results in line with analyst estimates this quarter, 16.4% revenue growth for Micron Technology was still OK. This was the third straight quarter of decelerating growth for Micron Technology, potentially indicating a coming cycle downturn.

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 13% year on year decline, but analyst think it will recover next year, as consensus NTM revenues are forecast to grow 16%.

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 111, 2 days below the five year average, showing no indication of an excessive inventory buildup at the moment.

Key Takeaways from Micron Technology's Q3 Results

With a market capitalization of $62.5 billion, more than $10.2 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

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 unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and the revenue growth was quite weak. Overall, this quarter's results still seemed mixed. The market was likely expecting more and the company is down 3.31% on the results and currently trades at $53.61 per share.

Should you invest in Micron Technology 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.