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What Could Impact Micron’s Gross Margin in Fiscal Q1 2019?

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Micron’s profit margins

Micron Technology’s (MU) profit margins are the product of ASPs (average selling prices), cost per unit, and product mix. Gross profit comprises the sales left after deducting production costs. The gross margin is the gross profit as a percentage of revenues. Micron has been focusing on cost competitiveness in fiscal 2018,[1. fiscal 2018 ended August 31] which helped it improve its gross margins significantly.

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Gross margin

Between the fourth quarter of fiscal 2017 and the fiscal fourth quarter, Micron improved its non-GAAP gross margins from 51.0% to 61.0% by reducing its cost per bit and improving its product mix. Higher DRAM (dynamic random-access memory) prices added to the margin expansion.

Between the fourth quarter of fiscal 2017 and the fiscal fourth quarter, Micron’s DRAM gross margin improved from 59.0% to 71.0% as it transitioned to 1X DRAM. It also improved its mix of high-margin DRAM like the GDDR6 (graphics double data rate) DRAM it supplied to NVIDIA (NVDA).

Its NAND (negative AND) gross margin rose from 40.0% to 48.0% as it transitioned to 64-layer 3D NAND and improved its mix of high-value NAND solutions to more than 66.0% in the fiscal fourth quarter.

During its earnings call for the fiscal fourth quarter, Micron CFO David Zinsner stated that the company would stop reporting NAND and DRAM gross margins starting in the first quarter of fiscal 2019. Zinsner noted that this information is sensitive.

Micron’s gross margin guidance for fiscal Q1 2019

For the first quarter of fiscal 2019, Micron expects to report a non-GAAP gross margin of 57.0%–60.0%, representing a sequential decline of 130–430 basis points. Zinsner stated that a decline in its gross margin of 50–100 basis points would come from the tariffs imposed by the United States on $200.0 billion in Chinese (FXI) imports. The company is working to mitigate the impact of these tariffs, and it expects the improvement in its gross margin to be visible in one or two quarters.

The remaining gross margin decline would come from falling DRAM and NAND prices. However, the gross margin would be higher than the first fiscal quarter level of 55.0%, indicating that the overall memory market is healthy. Next, we’ll look at Micron’s operating margin.

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