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Micron Hides Another Key Metric From Investors

By Timothy Green - Sep 24, 2018 at 4:50PM

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A pattern is starting to emerge.

Just as the booming market for memory chips begins to cool off, Micron Technology ( MU -2.67% ) is making it harder for investors to understand its results. During the company's earnings call earlier this month, CFO David Zinsner announced that the memory chip manufacturer would no longer disclose gross margins for its DRAM and NAND product categories.

This isn't the first time Micron has become tight-lipped about a key metric. Back in December, the company stopped disclosing how its per-bit costs changed, and it replaced exact figures for sales volume and average-selling-price changes with vaguer statements like "increased upper single digit %."

Zinsner offered an explanation for this change, but I don't buy it. The company had no qualms about keeping investors informed as its results rapidly improved over the past couple of years. Only now, when the numbers are likely to start moving in the wrong direction, does Micron suddenly have a change of heart.

A Micron facility.

Image source: Micron.

Fair-weather transparency

During the earnings call, Zinsner explained the decision: "As we typically do this time of year, we reviewed the financial information we disclose to make sure that we are appropriately balancing the needs of investors to make an informed investment decision with the desire to keep confidential as much proprietary information as possible. In doing so, we also review information disclosed by competitors."

As a result of that review, the company has decided that product-category-level gross margins are getting the ax. Starting with the fiscal first-quarter report in a few months, those metrics will vanish from Micron's earnings release materials. "We view this information as sensitive and proprietary," Zinsner said.

Never mind that Micron had the opposite view when it first started disclosing this information in its fiscal 2017 first-quarter report, released in December 2016. Micron was just starting to pull out of a downturn after posting a net loss in fiscal 2016, and gross margin was still depressed. During that quarter, gross margins for DRAM and nonvolatile memory were just 28% and 23%, respectively.

Those numbers could only go up, and Micron no doubt wanted to make sure investors saw them rise. And rise they have. During the fiscal fourth quarter of 2018, DRAM gross margin clocked in at 71%, while NAND gross margin reached 48%.

But now, with NAND prices already plunging, and with many analysts predicting a downturn in DRAM prices next year, Micron's gross margins are set to reverse course. The company's first-quarter guidance calls for its overall gross margin to drop to a range of 57% to 60%, down from 61% in the fourth quarter. Falling NAND prices, potentially weak sales of PCs stemming from a shortage of Intel CPUs, and inventory adjustments at some of Micron's customers contributed to that weak guidance.

So I don't think it's a coincidence that Micron chose this moment to scuttle its gross margin disclosures.

Assume the worst

When a company stops disclosing an important metric that it had previously disclosed, I always assume it's because management wants to hide something from investors. That's not always the case, but I think it's true enough of the time to act as a reasonable rule of thumb.

In Micron's case, the timing is just too convenient to not be suspicious. Freely disclosing data on the way up, then shutting off the data spigot as the numbers peak: not exactly investor-friendly behavior.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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