Micron Technology Inc.

Fundamentals

##Symbol##MU

Micron (MU) collapsed off of its last earnings release on June 25th, falling from over $24 to as low as $17.14 a few days later, or all-told a 44% drop in a matter of days at its worst. The company sighted a weak PC market as the main culprit, missed EPS by reporting $0.54 versus $0.57 consensus estimates and missed revenue expectations by about $60 million (Source: Seeking Alpha). Some of that demand may be due to the Microsft (MSFT) Windows 10 upcoming release, so it could very well be delayed demand.

Windows 10 has received good reviews thus far and PC sales have a long history of jumping on new OS releases from Microsoft (MSFT). Unfortunately, it appears supply is also booming in part due to Samsung's improved production capability per DRAM exchange. So, lower demand with higher supply, and you get an ugly picture for a company so dependent on PC sales.

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Micron Technology is heavily dependent on DRAM (dynamic random-access memory) sales to the personal computer market, which provides over 60% of its revenue. But, Micron is investing heavily in research and development as it refocuses the company on more attractive markets, like cell phones and gaming. But there is a very bullish thesis surrounding MU (and Intel (INTC)), and it reads like this:

Micron's revenue is rising and is just below all-time highs while levered free cash flow is up and also near all-time highs. But that's not the real excitement. MU has seen research and development hit all-time highs, up 80% over the last-two years. The sizzle from that R&D came out today in a story published by Barron's, written by Tiernan Ray. In short, Micron and Intel have announced "3D XPoint" chips, which don't have transistors and are 1,000 times faster than traditional NAND flash memory chips. Here's a snippet from Ray's article:



This product release truly is the first new class of memory technology in decades. It hits a segment that has been suffocated by lack of true revolutionary innovation but has rather focused on product release after product release that was evolutionary but not revolutionary. Both Intel (INTC) and Micron are claiming that this "new breed" of memory chip will bring dramatic changes to performance in computers and smartphones. That's a bullish thesis if I've ever seen one.

Technicals   |   Support: 18   |   Resistance: 20.12   

Swing Death Cross Alert: The short-term 10 day MA is now below the 50 day MA.

MU has a two bull (lowest rated) technical rating because while it's trading above its 10-day moving average, its trading below both the 50- and 200-day moving averages and the 10 day MA is below the 50 day MA ("swing death cross"). The fact that the stock is up 5.88% today is the only thing keeping it from having the lowest technical rating possible.



Here are the consensus estimates for next quarter. Note that last quarter's actual result is included at the far right.

EARNINGS ESTIMATES
Earnings Date	EPS	Revenue (Mean)	Revenue (Median)	Last Quarter (Actual)
2015-09-24	$0.42	$3.6 billion	$3.6 billion	$3.9 billion M	Provided by ZACKS

Let's look at the core elements that drive the company's fundamental rating.

Fundamentals Rating Summary

METRIC	CURRENT	1YR AGO	2YR AGO	DIRECTION
Revenue (TTM US$ Millions)	16,819	14,974	8,193	RISING
Operating Margin (QTR)	1.194	1.27	1.10	FALLING
Net Income (TTM US$ Millions)	3,578	3,603	-761	FALLING
Levered Free Cash Flow (TTM US$ Millions)	2,170	921	614	RISING
Research and Development (US$ Millions)	406	349	226
Research and Development Expense/Revenue	0.105	0.088	0.097	RISING

Stock Returns and Chart

MU is down -33.8% over the last three months and down -34.1% over the last six months. The stock has returned -40.0% over the last year.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom).
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Now let's examine the visualizations of the critical financial measures.

METRIC	CURRENT	1YR AGO	2YR AGO	DIRECTION
Revenue (TTM US$ Millions)	16,819	14,974	8,193	RISING

Revenue over the trailing twelve months (TTM) for MU is up 12.3% year-over-year and 105% over the last two-years (a large part of that was due to the acquisition of Elpida Memory Inc. aka Micron Memory Japan Inc). That 12% rise is organic, even in a slowing PC market (for now) and is rather impressive for a firm of this size.

What do all these numbers mean?
MU's fundamental rating benefited these results:
1. The one-year change was positive (but no extra points were given for a large percentage increase).
2. The two-year change was positive.

Let's look at Revenue (TTM US$ Millions) in the chart below.


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Another way to look at revenue is to scale it by the number of employees. If we take the 24 technology companies with market caps between $15billion and $30 billion dollars, equal space them on the x-axis and then plot revenue per employee in $million on the y-axis, we can see that Micron sits nicely near the top generating $538,000 per employee in revenue.


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METRIC	CURRENT	1YR AGO	2YR AGO	DIRECTION
Net Income (TTM US$ Millions)	3,578	3,603	-761	FALLING

Net Income (after tax profit) over the trailing twelve months (TTM) for MU is falling, but if we look closer, we see a healthier trend. For the most recent trailing-twelve-months (TTM) the company reported net income of $3.6 billion which is only 0.7% lower than last year. With the acquisition of Elpida, we can see the mammoth change from two-years ago which went from a loss of 761 million to now a profit of nearly $3.6 billion.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line. We must note the falling quarterly results.


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METRIC	CURRENT	1YR AGO	2YR AGO	DIRECTION
Levered Free Cash Flow (TTM US$ Millions)	2,170	921	614	RISING

Levered Free Cash Flow (TTM US$ Millions) is a critical determinant of stock price since market cap is the present value of all future free cash flows. For MU the metric is up 136% in the last year and stands above $2.1 billion in the trailing-twelve-months.

For our next chart we plot Levered Free Cash Flow (TTM US$ Millions) in the blue bars through time.



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METRIC	CURRENT	1YR AGO	2YR AGO	DIRECTION
Research and Development (US$ Millions)	406	349	226

Research and Development (US$ Millions) is trending higher meaning that for at least five consecutive quarters, it's been rising. R&D is up 16% year-over-year and up 80% from two-years ago. Even with the acquisition, we can see a solid upward trend. The bullish thesis lies squarely on the belief that this R&D expense will pay off. The announcement today of "3D XPoint" is strong circumstantial evidence to support this bullish thesis.

R&D per dollar of revenue for the latest quarter is $0.105. Last year this measure was $0.088 (it's also rising). Micron is investing in the future and it hopes to turns this expense into revenue streams and free cash flow in the future.

In our final time series chart we plot Research and Development (US$ Millions) in the blue bars. Note the rising bars from one-year ago.


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Summary
Micron was crushed when it released earnings in late June. The company missed revenue and earnings and warned of PC demand weakness. This same news has hurt Intel (INTC). Both of these companies have missed out on the bull technology rally and have actually declined year-over-year by double digit percentage changes. The bullish thesis goes like this:

Micron is innovating. In fact, here's a snippet from the earnings call:

"On the technology deployment front we remained focused on three major technology initiatives, completing the ramp up of our 25 nanometer DRAM technology, driving scale output of our 20 nanometer DRAM technology and the launching of our 3D NAND technology. We are currently shipping early production in 20 nanometer DRAM and will continue to ramp throughout the remainder of this year."

Add to that the announcement today and Micron can stem the tide shrinking PC demand as it turns to new innovative solutions that appear to be "must haves" for all new hardware that wants to compete in the growing competitive landscape.

The bearish thesis reads like this: Micron is heavily dependent on memory sales which are delivered to PCs and smartphone. There's a slow down in the PC market that has forced Intel and Taiwan Semiconductor to cut CapEx b ya billion dollars in the next year and a glut of supply seems to be making things even worse.

Which thesis compels you?