Micron Is Becoming A Dominant Company With Strong Potential

Summary

• Micron has an impressive technology and a strong roadmap where it'll be able to continue holding its market share.
• The company's outlook is for maintaining market share and its guidance is for strong EPS and strong long-term shareholder returns.
• The company has a P/E of ~15-25 depending on the quarter, with significant growth as prices recover and the potential for strong shareholder returns.
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Micron (NYSE: NASDAQ:MU) has done incredibly well as one of the largest U.S. semiconductor companies with a market capitalization of more than $100 billion. The company has gone up nearly 10x over the last 5 years since its early-to-mid 2016 lows. As we'll see throughout this article, as semiconductor chip rockets, the company can generate strong shareholder rewards.

Micron Highlights

Micron has had a number of impressive highlights in its recent performance.

Micron Highlights - Micron Investor Presentation

Micron delivered incredibly strong FQ2 results above the company's original expectations. The NAND market is showing stabilization but the DRAM market is still in severe shortage. That's a result of severe demand growth from increased WFH and a general massive explosion of technology. The company has set revenue records for MCPs and automotive.

Despite overall manufacturing shortages, the company managed to reach normal level of inventory ahead of schedule. The company is continuing to work on its technology roadmap.

Micron Technology and Roadmap

Micron is focused on continuing to innovate its technology and improve its overall roadmap.

Micron Technology and Roadmap - Micron Investor Presentation

Micron continued to progress well towards the company's goals while maintaining stable bit share. The company's 1-alpha based 10 nm DRAM node is in volume production and ramping up. The company expects this DRAM to be its FY 2022 workhorse supporting bit growth and cost reduction, along with lining up with the introduction of DDR5.

The company's NAND node is also focused on a 176-layer NAND node to keep costs low and remain competitive. Here the company expects to improve well and expects this to be its FY22 workhorse. Overall, as the market recovery continues, we expect the variety of the company's businesses such as Data Center, PC, and graphics to perform well.

Micron Outlook

The company's outlook here is for strong returns.

Micron Outlook - Micron Investor Presentation

The company expects CY-21 DRAM bit industry growth of ~20% with supply before demand. The company is seeing DRAM prices increase rapidly due to severe undersupply, which should help support its overall potential. However, in the NAND industry, the company foresees supply exceeding demand which could hurt prices.

The company sees more NAND capex cuts needed but long-term bit demand growth of roughly 30% annualized. Micron expects bit supply growth to be below industry demand growth, which could hurt the company's position some, but long term, the company expects to line up with industry demand growth. The company will focus on cost reductions.

Micron Financial Performance

Micron has continued to have strong financial performance as it continues to invest in its business and has the potential to drive substantial shareholder rewards.

Micron Revenue - Micron Investor Presentation

Micron saw FQ2-2021 revenue of ~$6.2 billion. That represents a substantial 34% YoY change versus $4.6 billion a year ago and ~$6 billion a quarter ago. Combined with rising prices, that shows the company's strong financial performance and its focus on continuing to maintain incredibly strong revenues for the company.

The company saw a gross margin of 32.9% on its strong revenue, with $797 million in operating expenses and $1.1 billion in net income. That resulted in diluted EPS of $0.98. The company's annual EPS is almost $4, giving the company an incredibly strong P/E of ~23. That's on top of the company's strong growth potential.

It's worth noting the company's adjusted EBITDA in the quarter was also $2.8 billion and the company's cash from operations (GAAP) was $3.1 billion. However, the company has continued to invest heavily in capital spending. The company has $1.9 billion in net cash and $11.1 billion in liquidity and its quarterly capital expenditures are ~$2.3 billion.

Micron Guidance

Micron's guidance is to focus on continued shareholder returns and continuing to perform.

Micron Guidance - Micron Investor Presentation

Micron expects revenue of ~$7.1 billion +/- $200 million versus $6.2 billion in previous revenue. That represents strong QoQ growth of nearly 15% with strong 41.5% gross margin. This will support diluted EPS of ~$1.62/share. That'll drive the company's P/E to less than 15 showing the company's overall financial strength.

This shows the company's overall guidance for strong shareholder returns.

Micron Risk

Micron's risk is that it effectively operates in a commodities business with its NAND and DRAM ventures. The company has performed incredibly well; however, with oversupply there's no guarantee that prices could not collapse, hurting the company's performance. That's a risk always worth paying close attention to.

Conclusion

Micron has an impressive portfolio of assets worth paying close attention to. The company has performed well recently and, at the same time, is remaining competitive in the industry. The company is supported by overall macroeconomic factors allowing the company to increase its profits significantly.

Going forward, we expect Micron to generate substantial shareholder returns. The company's P/E based on its next quarter guidance is less than 15 and we expect it to use billions in cash flow for substantial additional additional shareholder rewards. An example of this is the company's recent share buybacks. Overall, the company's position here is strong.

Analyst’s Disclosure: I am/we are 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.