Micron’s operating efficiency
Micron Technology (MU) has been increasing its gross margin over the last one-year period by improving cost competitiveness through technology advancement. The company is also restructuring its product offerings to focus on high-margin products. In fiscal 2017, the company sold its low-margin Lexar retail memory brand.
The benefit of a high gross margin trickled down for the company. Micron’s non-GAAP[1. generally accepted accounting principles] operating margin rose fourfold from 11.0% in fiscal 1Q17 to 46.0% in fiscal 1Q18. This is double the gross margin growth witnessed in the same period.
Micron’s operating margin rose faster than its gross margin as it controlled its operating expenses, which rose only 3.0% YoY (year-over-year) to $612.0 million in fiscal 1Q18. As Micron increases the mix of value-added memory products and ends its NAND development collaboration with Intel, its R&D (research and development) cost is expected to increase in fiscal 2018.
Micron expects its operating expenses to increase 6.0% sequentially to $650.0 million at the midpoint of fiscal 2Q18. Despite this trend, Micron’s operating margin is expected to improve to 47.9% in fiscal 2Q18.
The benefits of strong revenue growth and expanding operating margins reflected in Micron’s EPS (earnings per share). Its non-GAAP EPS rose more than sevenfold from $0.32 in fiscal 1Q17 to $2.45 in fiscal 1Q18.
This trend beat the company’s guidance of ~$2.23 and the analysts’ estimate of $2.03 by a huge margin. On a sequential basis, its EPS rose 21.0% during the quarter.
For fiscal 2Q18, Micron expects its EPS to increase 5.0% sequentially to $2.58 at the midpoint, in line with the analysts’ estimate of $2.57. Analysts expect Micron’s EPS to increase 97.0% YoY to $9.77 in fiscal 2018.
Although Micron’s fiscal 2018 earnings growth may not be as strong as in fiscal 2017, it could grow in double digits. Next, we’ll see whether Micron’s fiscal 2018 earnings could be impacted by the impending tax cuts.