This article is a continuation of one on the same theme. Unlike the industry experience informed efforts of SA's Russ Fischer and RJackson, who are crafting more detailed bottoms up forecasts (as detailed in the referenced article) I've stapled my more aggressive predictions to the forecast by Wells Fargo in their June 10 update on the company. The guts of their forecast appear below, with my more optimistic assessment of revenue growth and stronger margins. A quick sensitivity analysis shows a 1 cent improvement in eps for every 1 percent increase in revenue, and a 2 cent improvement for every 1 percent increase in gross margin percentage.
|Total Op Exp||314||389||370||370|
- Wells Fargo is source for actuals
- Operating Expenses held constant for last column
- Tax rate constant for last column
- Agree with WF zeroing out minority equity earnings since Innotera turned positive
Discussion and Rationale. There was some informal estimating here on SA before the 2Q and I believe most pundits were disappointed in the revenue growth, I know I was. But due to the lag, most of the price rise in the last quarter which wasn't captured then, likely was now. As a side note, DRAMexchange continues to report very strong pricing on individual chips. The DDR3 4Gb DRAM was up another 2.06% last night having scored a 2% rise earlier this week. There remains a lot of upward price movement for Micron to capture in their contract renewals.
On gross margin, I was interested that in the Bank of America/Merrill presentation, Kipp pointed out that their SSD group wasn't getting all the NAND they wanted, with words to the effect, "there are other niches with higher margin opportunities out there." Presumably, another quarter of dealing with the increased wafer supply from Inotera will have allowed Micron to find a happier higher margin home for that output as well.
Your mileage may vary. Try your own sensitivity analysis on the Wells Fargo forecast. Tune in to the earnings discussion on June 19th at 4:30 per this page on Micron's website.
Disclosure: I am long MU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.