Micron Technology (MU) announced its fourth quarter financial results. For the fourth quarter, it reported net loss attributable to $243 million, or $0.24 diluted per share. This is an improvement from the previous year's results of net loss of $320 million, or $0.24 diluted per share. But, this is slightly lower than market expectations of a fourth quarter loss of $0.22 per share.
This brings the full year 2012 net loss to $1.03 billion, or $0.14 diluted share. This is a reversal from fiscal year 2011 net income of $167 million, or $0.17 diluted earnings per share. The slower than expected performance is attributed to the difficult market conditions and lower selling prices.
Revenues amounted to $8.26 billion, a slight decline from the previous year's revenues of $8.78 billion. The decline in revenues was mainly due to lower DRAM and NAND shipments and flat average selling prices. Operating loss reached $618 million, also a reversal from last fiscal year's $755 million. If you look at its 10-year record, this seems normal as the semiconductor company has experienced peaks and troughs. On the average, revenues have grown by 8% for the last 10 years. Its operating margins have turned positive from negative 39.6% in 2002 to operating margins of 8.6% in 2011.
Semiconductor Manufacturing International (SMI) experienced revenue decline of 2.08% for the last 5 years. This translates to negative operating margins of 14.5%. Taiwan Semiconductor Manufacturing (TSM) posted revenue growth of 12.60% for the last 10 years. Operating margins have averaged 30% for the same period. For the last 10 years, the industry has seen big changes. It has been the main driver of the technological advances. Going forward, the industry will still remain as the major force behind consumer and computing innovations.
Elpida Buyout Remains the Biggest Driver
Despite the disappointing full year 2012 results, there are various reasons to be optimistic over Micron's future prospects. I believe that the recent Elpida buyout will bring in higher market share for the company. According to research firm iSuppli, Micron has a market share of 20.7% in the second quarter for the worldwide NAND flash memory market. It trailed Samsung's market share of 42.5% and Toshiba's 24.7%. For the record, Micron managed to cross the 20% market share threshold. This gives me confidence that Micron's financial results next year will definitely be better. In fact, the deal will allow them to capture Apple (APPL) orders in the future. This will also allow Micron to go head on with Samsung in the DRAM markets.
Following the challenges experienced in 2011, such as the Thailand earthquake, semiconductor sales for this year remained below the previous year's levels. The overall industry expects worldwide semiconductor sales to be 0.4% in 2012, and 7.2% in 2013. In terms of geography, the Americas region is expected to be up by 3.2% in 2012, Japan by 1.7%, and Asia Pacific by 0.1%. The relatively better growth for next fiscal year makes sense. Given the consolidation in the industry, average selling prices will remain stable. Also, the demand-supply gap has widened given the increased demand in tablets and smartphones.
Having said this, I believe that both computing and consumer markets will contribute to the company's growth in the coming years. Microsoft (MSFT) continues to drive enterprise computing solutions and speed up adoption of mobile devices with the launch of Windows 8. Other products such as Ivy Bridge and Romley, from Intel (INTC), also contributed to the development of enterprise segments. The growth of data center segments such as the focus on servers, storage, and networking equipment are encouraging. Moving forward, this will definitely improve the company's visibility.
Meanwhile, the near term biggest driver will be on consumer electronics. This will include smartphones, tablets, and other gadgets like LCD televisions and Blu-ray players. Based on the forecasts of Consumer Electronic Association, consumer electronics are expected to be up by 5.9% for this year. The growth is attributed to growth in tablets, smartphones, and 3-D enabled displays. I believe that the industry will also move into other sectors like automotive markets, medical devices, and defense equipment.
Overall, the fiscal year 2012 was relatively better than expected. But, the second half conditions have deteriorated given the prolonged weakness in the European region. I believe that the opportunities in the sector offsets more than the weakness. For example, ARM Holdings (ARMH) has recently launched power efficient chips to the market. As mentioned above, Intel's growth plans will also drive the industry's future profitability.
Micron - Valued at Normalized Earnings
Based on my calculations, the normalized earnings per share of Micron is at $0.5 earnings per share. Its peak earnings reached $1.86 per share in 2010 and depressed levels of $0.28 earnings per share. Assuming that the company can turn it into profit, the stock could easily trade at 15 times earnings. This would translate to the stock trading as much as $7.50, implying an upside of 29% based on the current price levels.
Micron did not provide any earnings guidance moving forward but, the company's management is confident that its new product introductions and cost cutting initiatives will catapult the company to profitability.
The stock currently trades at 8.3 times earnings and 80% book value. The depressed valuation level is due to tough current condition of the industry. Intel trades at 9.5 times earnings and 2.2 times book value. Another semiconductor company, such as Mosys (MOSY), is valued at 20 times earnings and 1.97 times earnings. There are no reasons why the company will go belly up in the next few quarters. In fact, it has a cash balance of around $2.56 billion and operating cash flow of $400 million for the quarter. This is more than enough to withstand stresses in the coming months. I believe that the market is valuing Micron on a worst case scenario. I believe that the next fiscal year will erase these doubts. This in turn will result in strong gains for the shareholders.