The semiconductor business is cyclical, with shortages in 2021 and falling demand in 2022. This isn’t necessarily a negative thing in the stock market; as I like to say, “volatility” may also mean “opportunity.” Nevertheless, identifying the underlying patterns is critical in cyclical sectors. In this situation, global semiconductor revenue is expected to expand 7.4% in 2022 before contracting by -2.5% in 2023. Both of these rates are much slower than the dramatic 26.3% growth expected in 2021 (when the economy reopens).
Micron (NASDAQ:MU) is situated to benefit from these long-term development trends as the world’s fourth largest semiconductor company. With a 24.5% market share, the business is also the world’s third largest DRAM (Dynamic Random Access Memory) supplier. DRAM is a type of short-term memory used in computers; if you’ve ever upgraded your laptop RAM, you’ve probably seen names like Micron or Crucial (Random Access Memory). Unfortunately, Micron’s stock price has down 40% from its all-time highs, and the stock is now inherently cheap. In this comprehensive study, I’ll dissect Micron’s business model, financials, and valuation; let’s get started.
Micron Technology’s Solid Financials
Micron delivered strong financial results in the third quarter of 2022. Despite coming in slightly ($2.98 million) below analyst projections, revenue was $8.64 billion, up 16% year on year and a record for the quarter. In addition, data Center expansion was a significant revenue generator, increasing by double digits Q/Q and by more than 50% year over year.
This was due to a significant increase in AI and machine learning workloads. Its Datacenter SSDs also set a new quarterly sales record and more than quadrupled yearly. The table below shows that the majority of parts fared well. Revenue from computing and networking was $3.895 billion, up 18% year on year. Storage sales were $1.341 billion, a 33% increase yearly. Embedded revenue increased by 30% year on year to $1.4 billion. The only downside was that mobile revenue was down 2% year over year at $1.967 billion, although even this was up 5% Q/Q, which was a plus.
Its Gross Margin was 47.4% in FQ3, up from 43% in the same period the previous year. The company’s operational expenditures were $953 million, up 9% year over year, which wasn’t a big deal considering that sales climbed by 16% over the same time. Operating income was $3.1 billion, a 33% increase yearly. Earnings Per Share [Normalized] were $2.59, beating analyst estimates by $0.15; EPS [GAAP] was $2.34, also meeting analyst expectations. In addition, Micron achieved significant cash flow from operations for FQ3-22 with $3.8 billion reported (44% of revenue), with a Non-GAAP Free Cash Flow of $1.3 billion.
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