Memory chip giant Micron Technology (NASDAQ: MU) reported first-quarter results Tuesday night, and it was a doozy. Micron smashed analyst targets across the board, and share prices jumped as much as 6.4% higher on Wednesday.
Revenues rose 71% year over year, landing at $6.8 billion; the analyst consensus only called for $6.4 billion. On the bottom line, adjusted earnings rose more than sixfold to $2.45 per diluted share. Here, your average analyst would have settled for $2.19 per share. Looking ahead, Micron's management also issued second-quarter guidance targets far ahead of current analyst views.
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That's Micron's first quarter of fiscal year 2018 by the numbers. To get a deeper understanding of how the business is developing, let's take a dive into management's earnings call with analysts.
1. Street prices
Average selling prices for Micron's memory chips are obviously of critical importance to the company's business. In the past, boom times have always been followed by brutal price wars. Micron's revenues, profits, and share prices followed suit by crashing in lockstep with the market conditions.
But the industry has been reshaped by consolidation and a newfound fiscal discipline among the three largest memory-chip makers, one of which is Micron. Things actually look different this time. Chip prices are declining again after several quarters of stability, but that's a slow fall, while production costs are dropping much faster:
In this pricing environment, Maddock sees "reasonable room for gross margin expansion."
2. Supply and demand
Here's what the supply-and-demand equation looks like at the moment. In short, demand for DRAM chips is healthy and surging, while order volumes for NAND flash memory are skyrocketing:
In this healthy market environment, Micron has the rare luxury of picking its battles. The company is shifting its production lines to make higher volumes of very profitable product lines while limiting the supply of lower-value commodity chips. That includes a generous dose of fresh innovation:
As an interesting side effect of the shifting market winds, seasonal sales patterns are fading away:
5. What's next
Micron's CEO closed his prepared remarks on this optimistic note:
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