Micron Delivers On All Fronts

As widely anticipated, Micron delivered a stellar set of numbers last night in its earnings report for its fiscal third quarter ended in May. The company reported earnings of $1.62 per share on revenues of $5.57 billion versus Street expectations of $1.51 per share on revenue of $5.41 billion.

For the fiscal fourth quarter ending in August, Micron said that earnings would be in the range of $1.74 per share to $1.87 per share ($1.80 per share at the mid-point) on revenues between $5.7 billion and $6.1 billion ($5.9 billion at the mid-point) versus Street expectations of $1.57 per share on revenues of $5.6 billion. In addition, management guided gross margins to a range of 47% to 51% with operating expense around $600 million at the mid-point. ($575 million and $625 million guided range)

Don't let the uninitiated trick you into believing that the company's GM guidance was lacking. In my opinion 49% GMs is traditionally very high in the business and suggests strong pricing power by Micron. Think about the following if you need further validation.

GMs in the February quarter checked in at under 39% (38.5%), GMs in the just reported quarter ended May 2017 rose to 48% (company had guided GMs to a range of 44%-48%) which means they came in at the high-end of the guided range. Finally, at the mid-point of the current guidance, 49% GMs will more than likely turn out to be conservative as well. Finally, in the May quarter a year ago, gross margins were a relatively paltry 18%.

Micron is enjoying pricing power at the moment not seen since in almost two decades. The company did rightly temper expectations by saying that price increases can not be expected to continue as aggressively as they have, but increases can still be expected given the supply/demand imbalance.

As far as the supply and demand situation going ahead, Micron management stated on the conference call that DRAM supply side growth industry-wide would be in the 15%-20% range and that the company would be able to achieve meaningful growth in NAND and DRAM output by the time they roll into fiscal 2018 beginning in September of this year. NAND supply growth going forward is expected to be in high 30% to low 40% range going forward.

Most importantly, Micron stated that they see healthy demand for its chips persisting into 2018.

That, to me, is the key going forward. The argument has been that demand for NAND and DRAM has peaked and it is downhill from here. Nothing could be further from the truth no matter how much the boo-birds will try and convince (lie to you flat out) anyone who listens otherwise.

In fact, if one thinks about it the demand for products using NAND and DRAM chips is not decreasing by any means even in PC land where growth has been flattening out for years.

In addition, with the launch of new flagship phones from both Apple and Samsung, demand has pretty much one way to go which is higher.

Micron looks higher by a couple of quarters in early pre-market trading at $32.08 per share.

The relatively muted response is more than likely a function of the current apathy in techland.

Micron results should benefit the chippies today and also validates my move away from the July paper in Micron into the August expirations.

(Long aapl shares, long and short mu and aapl options)

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