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hi everybody my name is justin today i want to talk about micron ticker symbol mu i personally owe micron myself and i previously went over my investment thesis on why i think micron is a really great buy so i'll put that stock analysis video down in the description below if you want to go check it out now every once in a while i do reevaluate all the stocks in my portfolio and today i want to discuss micron because their stock has dropped almost 30 percent from its highs several months ago in fact they had recent earnings and their stock dropped almost 10 percent after earnings so i want to figure out is my investment thesis still correct or not has anything changed with this business so that's what we're going to discuss today so first up let's take a look at the stock price year to date and you can see back in january it was trading around 75 dollars a share it got all the way up to about 97 a share back in april and today it's trading at 65 a share so right now is actually the lowest point for this year however if we went back a couple of years micron has had a really really good run i mean they've gone for almost twenty dollars a share almost up to a hundred dollars now it's kind of taken a downward trend at least here recently so if you would have bought this stock back the beginning of the year and held it till now it's a 10 drop so next let's talk about the business overview in case you don't know much about micron they have historically been focusing on designing and manufacturing dram for pcs and servers so micron is a memory chip maker the firm then expanded into the nand flash memory market it increased its dram scale with the purchase of alpeda completed in mid mid-2013 and in otera completed in december 2016.
the firm's dram and nand products tailored to pcs data centers smart phones game consoles automotives and other computing devices micron is only three companies in the entire world that make memory chips so they compete with samsung and sk and micron is the only us memory chip producer in fact samsung and sk are headquartered in south korea all right next up let's take a look at their quarter 4 2021 operating results so kind of a different calendar year compared to most companies but just know that they recently entered their 2021 fiscal year so in quarter four they had 8.3 billion dollars worth of revenue which is the highest they've ever had and a quarter before in their history for the entire year they did about 27.7 billion dollars their gross margin and this last quarter was 47 which is absolutely incredible and for the year it was on 39 again that is solid solid numbers their net income came at 2.8 billion dollars for the quarter and their for the fiscal year it came in around 7 billion so that is really impressive so if their revenue was around 28 and their net income is around 7 you're talking almost a 25 net profit margin which is absolutely incredible credible four semi conductors now earnings per share for the quarter was 2.4 and for the year it was six their cash from operations was 3.9 billion dollars and for the year is 12.5 billion dollars now now we're going to take some time and dig into some of these categories to see what's going on with micron over the last year and first up let's talk about revenue so for total q4 revenue was approximately 8.3 billion dollars like we talked about that's 11 percent up quarter over quarter but 37 percent year over year q4 revenue growth was broad-based with solid demand and price increases in both dram and nand so my investment thesis on this company and the reason why i bought into them initially right now they have a lot of tailwinds in this industry like a lot of semiconductor companies they can go through cyclical markets and memory chip makers over the last seven several years have had a difficult time but now we've kind of reached this perfect trifecta where there's high demand for the memory chips and then the whole roni rona situation also catapulted high demand say for pcs but the supply has been stretched to say the least for memory chips and other products as well and because the demand for memory chips has gone up so much micron can actually charge more for their products because again there's only three companies in that space and they're the only us dram producer all right so they robust growth in q4 contributed strong performance and fiscal year 2020 with revenue of 27 billion which we talked about previously up 29 from the prior year now let's talk about revenue by segment and they have a few different segments within the company so the revenue for the compute and networking business unit was 3.8 billion dollars up 15 sequentially and up 26 year-over-year growth was led by the data center and graphic markets and if you're wondering where i'm pulling this information from so i went through their 10-q ernie's presentation then also listen to the last earnings call so i'm kind of pulling information from all all different facets all right next up is revenue for the mobile business unit which was 1.9 billion dollars that was down five percent quarter quarter however it's up 29 year over year mobile demand remained healthy in the corner with continued momentum from the rollout of 5g the mobile business unit for a quarter for fiscal year 2021 exceeded 7 billion which set a new record revenue for the storage business unit was 1.2 billion 19 from the prior quarter and up 32 year-over-year so these are some huge growth i mean you're talking 25 to 30 percent between all of these now qlc shipments set a new record in the fiscal year in terms of percentage of their nad shipments the embedded business unit generated record revenue of 1.4 billion dollars 23 sequentially and more than doubled year over year they continue to experience strong demand across automotive industrial markets for the fiscal year the embedded business unit easily exceeded four billion dollars setting a new revenue record so both of these here storage business unit and the embedded business unit set records incredible all right so now let's look at revenue by technology so they have the dram chip they have the nad chips and then they have an other and for this last quarter the dram chips were about 74 percent of the revenue the nand was 23 or excuse me 24 and other was three percent next up let's talk about operating results and let's first focus on gross margins so their gross margins for q4 was 47 that's incredible up 500 basis points from the prior quarter pricing increases across dram and nand as well as strong execution and their ongoing product portfolio transformation drove margin expansion in the quarter next up we'll talk about operating cash flow 3.9 billion dollars in cash from operations in q4 representing 47 of revenue that is that's incredible for the fiscal year cash from operations totaled 12.5 billion up from 8.3 billion in the prior year capex net capital spending was about 2 billion during the quarter and about 9.7 billion for the fiscal year their free cash flow was 1.9 billion for the fourth quarter and 2.8 billion for the for the entire year the increased cash flow is driven by strong revenue growth increased profitability and efficient working capital management and free cash flow most people that look at this company they don't dig in there's looking at the financials so kind of doing a fundamental analysis are just going to pass a micron in general because they're going to look at free cash flow and historically has been pretty bad almost non-existent because they've been buying up so much capex which is just diluting their free cash flow but because there's so much demand for their memory chips right now which is driving their top line also driving their bottom line you know they're putting money towards capital expenditures because they have so much top lane growth they're easily able to cover that and have money left over after that now let's talk about earnings and first up let's talk about their earnings history you can see for coors grow that they beat earnings by nine point nine percent they beat earnings by three percent following quarter they beat it by nine percent the falling quarter and then this last quarter they beat earnings by 3.9 percent so they were supposed to come in around 2.3 and they ended up coming around 2.4 so they're non-gaap earnings per share and q4 was 2.42 which was talked about up from 1.8 and fiscal quarter three up from a dollar eight a year ago eps included approximately two cents of gains from investments in their venture armed micron ventures for the fiscal year total eps was six dollars up more than one hundred percent from the two dollars and 83 cents achieved in the prior fiscal quarter so very very you know awesome numbers that we've seen so far not only that but they've been really returning value to the shareholders so they've been buying back shares they repurchased about 1.1 billion dollars worth of shares approximately 13.9 million shares and q4 for the fiscal year they've purchased about 1.2 billion so you can see they purchased most of that in the last quarter and i believe this will continue to go up going forward and they've been talking about at least management has that they really want to focus on more share buybacks and they did their first dividend payment so they paid out their first dividend 10 cents it's really small i get that but they paid out on october 18th with shareholders record as of october 1st i think this is a huge deal and i talked about that in my investment thesis video which i put a link down in the description below that this really gives me conviction that management believes that their free cash flow is going to continue going out in the future i don't think they're just going to put a dividend out there even as small as it is if they don't think free cash flow is going to continue to grow out in the future not only that but you're going to attract new investors dividend type investors that might be interested in micron when they wouldn't before the initiation of the dividend is very an important milestone that reflects a structural transformation micron has undergone over the last several years and it shows their confidence and the sustainability of cash flow generation now future value the management expects that to continue generating they expect to continue to generate strong free cash flow in the future and they discussed in their capital return strategy call in early august that micron is committed to returning more than 50 percent of cross-cycle free cash flow to shareholders through a combination of buybacks and a quarterly dividend that they expect to continue to grow over time so this is really really good stuff here all right so now let's talk about cash and debt and here's right out of their balance sheet as of the last quarter and their last quarter ended august 31st and according to the balance sheet that i pulled it was 8.6 billion dollars in cash and about 7.1 billion dollars in long-term debt now what's interesting is that this company put out a statement saying the end of the fiscal year with 10.5 billion dollars in total cash and investments i see 8.6 billion so my guess is that there must be some kind of restricted cash in these amounts here that they are including in their their cash and short-term investments which is kind of interesting and then they have they're saying about 13 billion in total liquidity their total debt they're saying is around around 6.8 billion dollars so i think they're in pretty good shape overall they have more cash than they have long-term debt so they're sitting in a very good position right now now you might be asking yourself so these numbers were so great if they're going to provide more future value to the shareholders and dividends and share buybacks what is going on why in the world have investors sort of jump ship even the last earnings call well simply put has to do with their quarter next quarter guidance and this is what the company had to say in the near term q1 2022 bit shipments will decline modestly in both dram and nand from very strong levels and fourth quarter of 2021.
some pc customers are adjusting their memory and storage purchases due to shortages of non-memory chip components that are needed to complete the pc bills we expect this adjustment at our pc customers to be largely resolved in the coming months we are also seeing constraints within our supply chain for certain ic components which will somewhat limit our bit shipments in the near term so what the company is saying is their customers that they're supplying memory chips to are having constraints logistically and globally is getting as far as getting their product to them so they can build their pcs and other stuff that they're trying to build so the demand for micron is still there but it's kind of being put on hold so this is not the fault of micron it's kind of the whole global thing that we're going through right now i mean you're hearing that there could be a supply issue for christmas coming up because the demand in general across the world is so high among all kinds of different things even companies that i personally own like corsair gaming they come out and talked about all these global shipping issues that are prevented getting their inventory in to build their computers even all these bargain outlet that i personally own they've talked about issues trying to get items that they can buy to put in their stores so we're seeing that across the globe we're seeing that across the united states but it's important to note there's nothing wrong with micron it's just their customers right now can't buy all these memory chips because they'll just sit their inventory as they're waiting for other inventory so they can build their product all right so what's important note this is a short term issue this is not a long-term issue micron's guidance is driven by a shortage of components at personal computer manufacturers and not by weak demand for memory products not surprisingly as the pc market is expected to remain in good health going forward market research firm idc estimates that the demand for desktop pcs notebooks and workstations could grow at an annual pace about three percent through 2025.
as a result pc drain demand could bounce back once the near term supply constraints are taken care of important note so management from micron expects pc deliveries to speed up in the second half of 2022 thus dram chip should rebound very nicely so again the demand is there they just have to wait for their customers to kind of catch up on their inventory on the other products so they can buy more memory chips all right so let's talk about the 2022 q1 guidance so micron things are going to do about 7.6 billion dollars and revenue they think their gross margin is going to be around 46 which is absolutely incredible they think they're diluted earnings per share is gonna be around two dollars now my original 2022 eps projection was between 10 and 15 for 2022.
that was part of my investment thesis however since we're seeing this global logistics shipping issue the shipments of these memory chips are going to be pushed out a little bit so this 10 to 15 now is too optimistic in my personal opinion analysts now believe that eps is going to be around eight to nine and in 2022 and then 11 to 12 and 2023 so basically the memory chip demand like i said before is there but everything is getting pushed out about six months all right so has my micron investment thesis changed at all so supply constraints and global shipping logistics for pcs is slowing the demand for memory chips i think i should award this a little different not demand but demand is still there but they it makes no sense for them to buy the memory chips right now because they're just going to sit in inventory until they can get the other pieces of their inventory to make their product so the demand is still there but they're just waiting for suppliers or customers to kind of catch up the demand for memory chips will speed up in the second half of 2022 and my investment thesis is still playing out micron is you know only one of three memory chip producers only us-based dram semiconductor nothing wrong with microns business whatsoever you know whatsoever or even the chip market in general i'm a long-term investor while mr market is a short-term investor so keep in mind that most of the market and when i say most of the market i'm talking about hedge fund managers specifically which control eighty percent of the total funds that are in the market they're always looking at three six you know three to six months out they're always looking against their peers and they're just trying to position their portfolio to at least get close to what their peers are doing or just slightly beating their peers so they don't lose their jobs when they hear situations where revenue or profit is going to be pushed out say six months they can't wait that long they got to get into something else and so that's why a lot of them sold micron but as a small retail investor like myself these are really good opportunities take advantage of these hedge fund managers who are selling out that don't have a long-term mindset i have a long-term mindset i still believe that micron is going to get well into the three digits for their stock price so i am well willing to hold on to this not only that i'm willing to buy more so i'm very very bullish on micron and my investment thesis has not has not changed one single bit so thank you guys so much for watching this video i really appreciate it if you haven't liked the video already please do so if you got some value out of it if you haven't done so please subscribe to my channel if you like this type of content and some future video topics i'm planning to put out there uh one is going to be on foot locker another one on hingham institute another one on huntington ingalls another one on ford another one on hewlett packard if there's a specific company you want me to do research on or do a video on drop it down the comment section i read every single one of those thanks again for watching i'll catch you guys on the other side take care and god bless
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