Micron TechnologyMU60,23 $
At the end of June, Micron submitted a report for 3 quarter of 2022, which recorded strong current financial results, but stocks still fell. Basic moments:
- revenue set a new record, increasing by 16%, up to $8.642 billion, which generally coincided with the general market consensus forecast of analysts;
- adjusted net earnings per share increased by 38%, from 1.88 to 2,59 $, when forecasting in 2,44 $;
- free cash flow declined slightly, up to $1.31 billion, against the backdrop of rising capital costs, which year on year increased by 24%;
- the company ended the current quarter with a strong cash position, equal to $5 billion in net cash, but at the same time gave a very gloomy forecast for the next quarter, who ruined everything.
Sales structure of the company
The main activity of Micron is related to the production of semiconductor products., which the company develops using various technologies. That is why management divides its income in two ways: by development technology and markets.
Development technologies. This division can also be divided into two parts. The first is DRAM, are semiconductor devices of dynamic RAM, which provide high-speed data retrieval with various performance characteristics. Most often, DRAM memory modules are used in PCs., cloud servers, auto and industry.
The second part is NAND memory modules, are non-volatile, rewritable semiconductor storage devices, which are most often used in solid state drives and removable media. DRAM and NAND add up to Micron 99% income, and the rest 1% - other memory modules, for example 3D XPoint and NOR.
Markets. Four Market Industries Use Micron Semiconductor Products:
- Computing and networking - these include PC manufacturers, cloud servers, graphics and network equipment.
- Mobile devices: the company sells memory modules for smartphones.
- Data storage devices: this segment interacts with manufacturers of solid state drives.
- Industry: Micron's semiconductor products and solutions are used by customers in vehicle development, light household appliances and heavy industrial equipment.
IN 3 quarter of 2022, Micron's total revenue grew by 16%, up to $8.642 billion, thanks to strong sales of NAND memory modules, as well as successful results in all markets, excluding mobile devices, - the indicators of this direction remained practically unchanged year-on-year. The main reason for this is the decline in average prices for Micron semiconductor products for smartphones., which completely offset the growth in supplies.
Sales structure of the company, billion dollars
| Development technologies | 3к2021 | 3к2022 | The change |
|---|---|---|---|
| DRAM | 5,448 | 6,271 | 15% |
| NAND | 1,812 | 2,288 | 26% |
| Other revenue | 0,162 | 0,083 | −49% |
| total revenues | 7,422 | 8,642 | 16% |
| Markets | 3к2021 | 3к2022 | The change |
| Computing and networking | 3,304 | 3,895 | 18% |
| Mobile devices | 1,999 | 1,967 | −2% |
| Data storage devices | 1,009 | 1,341 | 33% |
| Industry | 1,105 | 1,435 | 30% |
| Other revenue | 0,005 | 0,004 | −20% |
| total revenues | 7,422 | 8,642 | 16% |
Sales structure of the company by development technologies, billion dollars
Sales structure of the company by sales markets, billion dollars
EBITDA and net income
In contrast to EBITDA revenue and Micron's net income 3 quarter of 2022 increased much more significantly - by 44 at once and by 51%, to 4.825 and 2.626 billion dollars. This is mainly due to one-time write-offs, which the management of the company was forced to carry out in 3 quarter of 2021. Without them, EBITDA and net income would have grown by only 27 and 21%.
IN 3 quarter of 2021, Micron recorded a write-off of $435 million after, how it reached the final agreement with Texas Instruments, under which the semiconductor manufacturer in question sold its plant in the US city of Lehi.
Key financial results of the company, billion dollars
| 3к2021 | 3к2022 | The change | |
|---|---|---|---|
| Revenue | 7,422 | 8,642 | 16% |
| EBITDA | 3,356 | 4,825 | 44% |
| EBITDA margin | 45% | 56% | 11 P. P. |
| Net profit | 1,735 | 2,626 | 51% |
| FCF | 1,518 | 1,310 | −14% |
| net debt | −1,044 | −2,194 | — |
What's going on with Micron stock
Micron has shown extremely weak market dynamics since the beginning of the year: The company's shares fell by 44%, from 97 to 54 $, while index NASDAQ adjusted to just 30%. Why an American semiconductor manufacturer is showing such poor results? This can be explained by three factors.
First reason, from which at the end of January the shares began their fall, - This is a partial closure of the plant in Shanghai. Micron announced, that until the end of 2022 will stop the development of DRAM chips in China, transferring 150 Chinese engineers to the US or India. The main reason for curtailing this activity is the focus on other technologies.: NAND and SSD. But the market thought otherwise.: this decision, maybe, was dictated by the growing tension between the US and China.
The second factor is new anti-Russian sanctions from Western countries., which led to rising inflation in America and brought the world economy into recession. For example, US economy, according to the market, should face a recession in 2023. As an additional negative factor, one can still single out the decision FED raise the key rate, to somehow cool the American inflation.
And the last one, third reason, also associated with unprecedented inflation in the United States, is a decrease in demand against the backdrop of a decrease in the costs of buyers of semiconductor products. This is already officially announced not only by market analysts, but the companies themselves, e.g. Micron and AMD, which, because of this, even had to reduce their forecasts for the following quarters.
Management forecasts and dividends
After the publication of financial results, Micron management also announced an increase in quarterly dividend payments by 15%, from 0.1 to 0,115 $. Register Closing Date - 11 July 2022. The current quarterly dividend yield is 0,2%.
In addition to dividends, management also provided an updated guidance for 4 quarter of 2022:
- Micron's revenue 4 quarter will decrease by 13%, up to 7.2-7.6 billion dollars, — the market was expecting $9.05 billion.
- Gross margin will be at the level of 41.5-43%.
- Operating expenses will amount to $1.13 billion.
- Adjusted EPS to decrease to 1.63 $ when forecasting in 2,62 $.
Comparison with competitors
| EV / EBITDA | P / E | net debt / EBITDA | |
|---|---|---|---|
| Micron | 3,17 | 5,97 | −0,12 |
| Intel | 5,55 | 6,04 | 0,96 |
| Texas Instruments | 13,51 | 16,67 | 0,41 |
| Broadcom | 13,33 | 22,36 | 1,82 |
| Qualcomm | 10,14 | 12,40 | 0,59 |
What's the bottom line?
Micron posted strong financial results in the third quarter of 2022: EBITDA increased by 44%, net profit — on 51%. But the market completely ignored this report.: The management of the company presented an extremely weak forecast for the next quarter against the backdrop of more and more obvious problems in the American economy..
Micron's current low multiples should not mislead investors, because in 2018, against the backdrop of Trump's trade war with China, the company's valuation was about 50% lower: P / E less 3, EV/EBITDA less 2. Now the situation is similar: the market is waiting for a decrease in Micron's financial results due to a temporary drop in demand for products.
Should I buy shares of the company now?? Long-term investors are better off waiting for a more attractive moment, e.g. when Micron's valuation drops to the following values: P / E less 3, EV/EBITDA less 2, - or when the first signs of a recovery in demand for semiconductor products start to appear.
