Highlights From Micron's (MU) Q3 Conference Call: Reports Mixed Results, Cloudy Outlook

June 26, 2009 12:07 PM EDT

Micron Technology (NYSE: MU) reports Q3 loss of $0.36, 7 cents better than the analyst estimate of ($0.43). Revenue for the quarter was $1.1 billion, versus the consensus of $1.18 billion. Shares started off in positive territory this morning, but have since fell and are now down almost 3%.

Highlights From MU's Q3 Conference Call:

• (CEO) The results for Q3 reflect an operating loss of 246 million and a net loss of 290 million, or $0.36 per diluted share, on net sales of 1.1 billion.
  
• Cost of goods sold was just under $1 billion, resulting in a gross margin of $107 million or 10%.
  
• Cost of goods sold in Q3 also includes approximately $30 million of charges from Inotera and IM Flash Singapore for the cost of idle capacity.
  
• Total sales in Q3 increased 11% compared to Q2 as a result of higher sales of both memory and imaging products.
  
• Memory sales also include royalties and technology fees of 32 million. DRAM sales increased 14% compared to the second quarter to 553 million, primarily due to an 18% increase in bit shipments.
  
• NAND sales were flat compared to the second quarter at 426 million, as a 20% increase in bit sales was offset by a decline in the NAND average selling price compared to Q2.
  
• Looking at NAND in more detail now, the average selling price in Q3 decreased approximately 17% compared to Q2.
  
• However, trade ASPs on sales to customers other than Intel were up about 13% while ASP per product sold to Intel (Nasdaq: INTC) from IM Flash, which are on a cost basis, declined markedly with the successful ramp of our 34-nanometer technology products.
  
• This new 34-nanometer technology node correspondingly drove down our overall NAND bit cost by 35%, well ahead of our prior projections.
  
• Q4 NAND cost reductions are expected to be in the high single-digits, and bit production is forecast to increase in the midteens range.
  
• DRAM production costs, excluding the effects of the lower cost or market write-downs and idle facility charges, decreased 11% compared to Q2.
  
• To date, Inotera has not produced any products for Micron. However, we expect to begin taking some volumes in Q4.
  
• Fiscal Q4 DRAM cost reductions are expected to be in the low teens, and bit production is forecast to increase in the mid to high teens range.
  
• We continue efforts to scale down operating costs as reflected in the aggressive reduction in SG&A costs, which were $80 million in Q3.
  
• We anticipate SG&A expense in Q4 to be in the 75 to $80 million range and R&D expenses to be in the 140 to $150 million range.
  
• Cash flow from operating activities in third quarter continued to remain positive at $151 million.
  
• We estimate capital expenditures in Q4 of roughly $100 million. For fiscal 2010 capital expenditures are expected to be in a range similar to 2009.
  
• Since we now treat Aptina as held for sale, we are required to recognize this estimated loss in fiscal Q3 in advance of the transaction's closing in Q4. After the close of the sale, the financial position and results of operations of Aptina will no longer be consolidated in Micron's financial statements, and we will have equity method accounting for the ongoing investment.
  
• (Vice President of Worldwide Sales) We experienced a strong increase in bit shipments in both our DRAM and NAND businesses during Q3.
  
• Additionally, we have seen some strong upside forecast in the service space, which we anticipate will bode well for us in fiscal Q4.
  
• The mobile segment side saw a decline in bit shipments quarter over quarter, down 12%. While the overall handset market continues to be challenged, Micron saw strong growth in shipments of our MCPs, multi-chip packages, where we experienced a 35% increase from previous quarter bit shipments.
  
• In Q3, our NAND shipments were up 21% from the previous quarter due to stronger-than-expected demand from the mobile, USB, MP3, photo and SP markets.
  
• (Q&A) Just a first question, it seems like the biggest variable in my model for you guys in fiscal Q3 was NAND pricing due to the impact from Intel. What's the expectation in the August quarter for Q4 in terms of NAND ASP per bit? (A) Well, right now in the market today we expect it to be kind of flat to modestly up in the quarter until we see what some of our customer demand will look like going into the holiday season, which normally we get a good sense of in August.
  
• I guess my question is, in - this is just guesswork here, but if you're rolling off Intel heavy Q3, and maybe lightening a little bit up in terms of the mix, in terms of Intel in Q4, I mean, does that effect have any impact on our assumptions for ASP per bit in Q4? (A)Well, I'm not sure the assumption that we're rolling off Intel in Q4 is correct. It's basically a flat split.
  
• And then if I just kind of look at the royalty business, I think what Nanya projected to start kicking in
  sometime, I guess next year in terms of their production, I was just wondering how should we be modeling basically or thinking about that royalty licensing revenue stream in 2010? Do we expect the R&D kind of sharing part of that revenue stream to start declining? Or does that start picking up because
  of the units coming out from Nanya in 2010? What's the directionality, and what's the magnitude of that in 2010? (A) We've got some technology agreements that are already in place, and that's showing in the revenue numbers that I mentioned that we're at $32 million this quarter, roughly the same last quarter, and that continues forward. Then also, as you point out, when volume picks up with product volumes out of Inotera, there will be licensing royalties associated with that capacity as well, at typical market rates, you might say. We haven't specifically called it out.
  
• Could you talk a little bit about how you perceive the licensing opportunity associated with the coming fiscal year, particularly as Nanya may increase production? And could you also just remind us of the framework for what we should be thinking about in terms of minority interest lost levels associated with Aptina, or what that might have been in the fiscal third quarter? And those are the two questions. (A) In terms of licensing, sort of as I mentioned earlier, we've got ongoing technology agreements that will be roughly at the level we've seen. And there will be, as I said, typical royalty levels paid on incremental volumes where our technology, our stack technology, is being applied in Inotera. Tim, haven't called out those specifics, but there'll be some expansion of that in the future as the stack technology gets adopted in Inotera, which as Mark mentioned, is scheduled out in the coming quarters. In terms of Aptina loss levels, that of course depends on their financial performance on their P&Ls rolling forward. And so we can't exactly call out what that would look like or our share of it, but we would be taking a 35% share whatever that financial result will be on a quarter-by-quarter basis, with a slight lag effect on the timing.

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