Micron: Fiscal 2Q19 Financial Results

Not flashy at all, worse than expected NAND pricing

This is a Press Release edited by StorageNewsletter.com on March 22, 2019 at 3:16 pm

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(in $ million)	2Q18	2Q19	6 mo. 18	6 mo. 19
Revenue	7,351	5,835	14,154	13,748
*Growth*		-21%		*-3%*
Net income (loss)	3,495	1,971	5,987	4,912

Micron Technology, Inc. announced results for its second quarter of fiscal 2019, which ended Feb. 28, 2019.

Fiscal Q2 2019 Highlights
• Revenue of $5.84 billion, vs. $7.35 billion for the same period last year
• GAAP net income of $1.62 billion, or $1.42 per diluted share
• Non-GAAP net income of $1.97 billion, or $1.71 per diluted share
• Operating cash flow of $3.44 billion versus $4.35 billion for the same period last year
• Share repurchases of $702 million under the authorized buyback program

“Micron continues to execute well across a range of product, operational and financial initiatives against the backdrop of a challenging market environment,” said president and CEO Sanjay Mehrotra. “These initiatives and our focus on high-value solutions, cost competitiveness and innovation will enable us to emerge even stronger as the market environment improves.“

Investments in capital expenditures, net of amounts funded by partners, were $2.45 billion for 2FQ19, which resulted in adjusted free cash flow of $988 million. Micron repurchased an aggregate of 21 million shares of its common stock for $702 million during the quarter in connection with its $10 billion share repurchase authorization.

The company ended the second quarter with cash, marketable investments, and restricted cash of $9.22 billion for a net cash position of $2.99 billion.

Comments

This analysis is mainly based on the NAND business (30% of global revenue) of Micron, the biggest storage firm in the world in term of revenue, rather than DRAM.

Storage Business Unit* (SBU) revenue in $ million

2FQ18	2FQ19	Growth
1,250	1,020	-19%

*SBU includes SSDs and other storage products, including component-level solutions sold into enterprise and cloud, client, and consumer SSD markets, other discrete storage products sold in component and wafer forms to the removable storage markets, and sales of 3D XPoint memory.

This SBU was down 11% Q/Q in 2FQ19 and this sequential decline was driven by lower SSD revenue, partially offset by increased component revenue.

96-layer 3D NAND: fastest yield ramp of any NAND product
in company's history:

Progressing on replacement gate development; limited deployment of initial node
High-value solutions: increased to two-thirds of NAND revenues in 1H19
Worse than expected DRAM and NAND pricing in 2FQ19 down 21% Y/Y and 26% Q/Q

3FQ19 guidance: Revenue of $4.8 billion +/- $200 million down quarterly 14% to 22%

Micron's CY19 Industry Outlook:

Bit demand growth in mid 30s; industry bit supply growth in high 30
Targeting bit shipments to grow close to industry bit demand growth rate
Reducing total NAND wafer starts by 5%

Abstract of the earnings call transcript:

Sanjay Mehrotra, president and CEO:
"We expect further progress on cost reduction this fiscal year, including healthy Y/Y cost declines in both DRAM and NAND.
"Given the limited initial deployment at the first node of replacement gate, we expect that our NAND bit supply growth in calendar 2020 will be below industry demand levels.
"Turning to high-value solutions, more than two-thirds of NAND revenues in 2H19 were from high-value solutions, up from 55% in 1H18. This increased mix of high-value solutions, combined with our competitive cost structure, enabled us to deliver fiscal 2FQ19 NAND gross margin in the high 30s despite steep price declines in the industry.
"In SSDs, we are making progress on transitioning to NVMe while continuing to improve our cost profile in SATA. In 2FQ19, we began revenue shipments to a large PC OEM for our first NVMe client SSD, which features our internally designed controller, and are in active qualifications with other customers. We intend to introduce cloud and enterprise NVMe SSDs later this calendar year. In SATA, we introduced consumer and client SSDs based on 96-layer 3D NAND in 2FQ19. In the cloud market, our custom persistent memory solution, which combines DRAM and NAND, is now fully ramped and contributed meaningfully to our cloud revenues.
"3D XPoint development remains on track with customer samples planned before the end of calendar year.
"NAND markets remain oversupplied from the acceleration in bit growth driven by the industry transition to 64-layer 3D NAND. Although fiscal 2FQ19 pricing came in below our expectations, we are optimistic that demand elasticity and seasonal trends will support improving demand growth in the second half of the calendar year. We expect that calendar 2019 NAND bit demand growth is likely to be in the mid-30s percent range, with industry supply growing in the high-30s, and we are targeting our bit shipments to grow close to the growth rate of industry bit demand. We have been managing our NAND bit supply growth prudently, including adjusting our capital planning and wafer volumes."

Dave Zinsner, CFO:
"NAND revenue declined 2% Y/Y and 18% from the prior quarter. It represented 30% of total company revenue in 2FQ19. Our overall NAND ASP declined in the mid-20% range, while shipment quantities increased in the upper single-digit percent range compared to the prior quarter. NAND bit shipments came in stronger than our expectation due to timing of demand from a large customer.
"On January 14, we exercised our call option to acquire IMFT, our joint venture with Intel. We expect to close the transaction in either late FY19 or in the first half of fiscal 2020. This near $1.5 billion transaction will also retire the $1 billion of joint-venture-related debt on Micron's balance sheet.
"In NAND, we expect a modest sequential decline in our bit shipments in 3FQ19 due to timing of shipments and expect growth to resume in 4Q19."