Micron Technology Inc. ($MU): Earnings Analysis

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Micron Technology Inc. ($MU): Earnings AnalysisMicron Technology Inc. (NASDAQ:MU) reports preliminary financial results for the year ended 2012-08-31.

Micron Technology Inc. (MU) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

Micron Technology Inc.’s analysis versus peers uses the following peer-set: SanDisk Corp. (SNDK), STMicroelectronics N.V. (STM), Spansion Inc. Cl A (CODE), Melexis N.V. (MELE), Rambus Inc. (RMBS) and STEC Inc. (STEC). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Annual (USD million) 2012-08-31 2011-08-31 2010-08-31 2009-08-31 2008-08-31
Revenues 8,234.0 8,788.0 8,482.0 4,803.0 5,841.0
Revenue Growth % (6.3) 3.6 76.6 (17.8) 2.7
Net Income (1,032.0) 167.0 1,850.0 (1,835.0) (1,619.0)
Net Income Growth % (718.0) (91.0) N/A N/A N/A
Net Margin % (12.5) 1.9 21.8 (38.2) (27.7)
ROE % (12.8) 2.0 29.2 (33.9) (23.2)
ROA % (7.1) 1.1 14.2 (14.7) (11.5)

Valuation Drivers

Micron Technology Inc.’s current Price/Book of 0.7 is about median in its peer group. MU-US’s PE multiple is negative now so EBITDA ratios provide better peer comparisons. MU-US’s share price implies less than peer median growth (Price to Ebitda multiple of 3.5 compared to peer median of 7.9). The market seems to expect MU-US’s around median rates of return (EBITDA return on equity of 20.2% compared to the peer median of 19.5%) to decline.

The company’s profit margins are below peer median (currently -12.5% vs. peer median of -5.5%) while its asset efficiency is about median (asset turns of 0.6x compared to peer median of 0.6x). MU-US’s net margin continues to trend downward and is below (but within one standard deviation of) its five-year average net margin of -9.6%.

Economic Moat

Changes in the company’s annual top line and earnings (-6.3% and -718.0% respectively) generally lag its peers. This implies a lack of strategic focus and/or inability to execute. We view such companies as laggards relative to peers.

MU-US’s return on assets is less than its peer median currently (-7.1% vs. peer median -4.4%). It has also had less than peer median returns on assets over the past five years (-3.6% vs. peer median -1.2%). This performance suggests that the company has persistent operating challenges relative to peers.

The company’s gross margin of 38.7% is around peer median suggesting that MU-US’s operations do not benefit from any differentiating pricing advantage. In addition, MU-US’s pre-tax margin of -9.2% is also around the peer median suggesting no operating cost advantage relative to peers.

Growth & Investment Strategy

While MU-US’s revenues growth has been above the peer median (19.7% vs. 10.6% respectively for the past three years), the stock’s Price/EBITDA ratio of 3.5 is less than the peer median (Note: We use Price/EBITDA instead of PE due to negative earnings). This implies that the company’s earnings are peaking and the market expects a decline in its growth expectations.

MU-US’s annualized rate of change in capital of 12.2% over the past three years is around its peer median of 12.2%. This median investment has likewise generated a peer median return on capital of 4.1% averaged over the same three years. This median return on investment implies that company is investing appropriately.

Earnings Quality

MU-US reported relatively weak net income margins for the last twelve months (-12.5% vs. peer median of -5.5%). This weak margin performance and relatively conservative accrual policy (38.2% vs. peer median of 13.8%) suggest the company might likely be understating its net income, possibly to the extent that there might even be some sandbagging of the reported net income numbers.

MU-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median — which suggests a relatively strong buildup in reserves compared to its peers.

Trend Charts

Graph of Revenues Trend for Micron Technology Inc. (NASDAQ:MU)
Graph of Revenues Trend for Micron Technology Inc. (NASDAQ:MU)
Graph of Net Margin Trend for Micron Technology Inc. (NASDAQ:MU)
Graph of Net Margin Trend for Micron Technology Inc. (NASDAQ:MU)
Graph of Accruals Trend (% revenues, Quarterly) for Micron Technology Inc. (NASDAQ:MU)
Graph of Accruals Trend (% revenues, Annual or TTM) for Micron Technology Inc. (NASDAQ:MU)

Company Profile

Micron Technology, Inc. provides advanced semiconductor solutions. It manufactures and distributes advanced semiconductor solutions such as Dynamic Random Access Memory, NAND flash memory, CMOS image sensors, other semiconductor components and memory modules. The company operates its business through four segments: DRAM Solutions Group, NAND Solutions Group, Wireless Solutions Group and Embedded Solutions Group. The DRAM Solutions Group includes high volume Dynamic Random Access Memory products sold to the personal computer, consumer electronics, networking and server markets. The NAND Solutions Group includes high volume NAND flash products sold into data storage, personal music players and portions of computing markets, as well as NAND flash products sold to Intel Corp. through the company’s consolidated IM Flash joint ventures. The Wireless Solutions Group includes DRAM, NAND flash and NOR flash products, including multi-chip packages, sold to the mobile device market. The Embedded Solutions Group includes DRAM, NAND flash and NOR flash products sold into automotive and industrial applications, as well as NOR and NAND flash sold to consumer electronics, networking, personal computer and server markets. Micron Technology was founded in October 1978 and is headquartered in Boise, ID.


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