The commodity chip cycle was a little kinder to Micron (NYSE:MU) during its fourth quarter, and that led to better-than-expected performance. I wouldn't get complacent, though. While I do believe that Micron does about the best it can given its highly commoditized primary products, I'm not necessarily convinced that this is the beginning of a real turnaround.
For the fourth quarter, Micron's revenue rose about 6% while gross margins dropped precipitously -- from 33% a year ago to 22.4%. That said, investors often choose to focus on sequential comparisons for companies like Micron. Compared with the third quarter, revenue rose about 19% and gross margins improved from 8.2%. It should also be noted that Micron beat the mean revenue estimate and handily beat even the high earnings estimate of $0.04.
Also, there was a 15% increase in DRAM sales, helped by a 3% increase in average selling prices. Micron's CMOS image sensor revenue also rose 40% and revenue from NAND flash memory chips increased fivefold. For the quarter, DRAM was about half of the company's sales, specialty DRAM was about 30%, and CMOS and NAND flash memory combined for about 15%.
That last bit is what concerns me. I like the fact that Micron is getting growth out of non-DRAM products, but they're still just a small piece of the pie. Micron would seem to be gaining share at the expense of the likes of OmniVision Technologies (NASDAQ:OVTI), Samsung, and STMicroelectronics (NYSE:STM), but it's not yet enough to really make a major difference.
The question is whether this will prove durable. Personally, I happen to think that Micron has a pretty fair chance of growing its CMOS image sensor business. What's more, Samsung is rumored to be having significant problems with its NAND memory production yields, so that suggests that this market could stay healthy for a bit longer. On the DRAM side, though, pricing is still very soft and there seems to be an excess of supply and capacity.
Although Micron has positive cash flow, and that does count for something with me, I have pretty much zero interest in this stock right now. Simply put, commodity semiconductor companies rarely excite me unless I can buy at near-going out of business valuations. While I think Micron would probably go along for the ride if we see a broad recovery in technology stocks, I'd rather invest in a driver than a passenger.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
