Why Micron Technology Stock Rose 14% in November

Image source: Micron Technology.

What happened

Shares of memory chip manufacturer Micron Technology (NASDAQ: MU) rose 13.8% in November, according to data provided byS&P Global Market Intelligence. An improving environment in the DRAM and NAND markets, along with a guidance boost at the very end of the month, drove the stock higher in November.

So what

After reporting multiple quarters of revenue declines and losses due to weak memory prices, Micron is finally on the rebound. The company produced guidance in October calling for substantial revenue growth and a return to profitability during the fiscal first quarter, results for which the company will announce on Dec. 21.

Rising optimism that Micron's results would dramatically improve going forward fueled the stock's rise in November. On Nov. 29, Micron raised its guidance in a conference presentation, citing improving market conditions and slowing industry supply growth. Micron expects to produce $3.975 billion of revenue and $0.28 of non-GAAP EPS during the first quarter, representing year-over-year growth of 18.7% and 16.7%, respectively. One thing to note: EPS will actually decline on a comparable basis during the first quarter. Micron made some accounting changes that will boost EPS substantially.

Micron sees this momentum continuing into the second fiscal quarter, suggesting that its results will continue to improve. In another piece of good news, the company announced that it would finally close its acquisition of Inotera in early December, which will give a boost to DRAM gross margins, EPS, and free cash flow.

Now what

Micron's results are dependent on the spread between its per-bit manufacturing costs and per-bit prices. With DRAM and NAND being largely commodities, Micron does poorly when prices fall quickly and well when prices fall slowly. In fiscal 2016, Micron's average selling price for DRAM and NAND slumped 35% and 20%, respectively. Based on Micron's outlook, 2017 is shaping up to be much better.

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