Memory leader Micron opened semiconductor earnings season. FY24Q1 corresponds to September through November 2023.
Micron FY24Q1 Earnings:
Revenue was $4.726B, up 16% year over year and 18% sequentially; revenue has recovered for three consecutive quarters; guides FY24Q2 revenue of $5.3B, up 44% year over year and 12% sequentially (revenue peak was $8.4B in FY18Q4).
GAAP gross margin -0.7%, sequential loss narrowed by 10.1 percentage points; guides FY24Q2 gross margin of 12%, turning positive one quarter early (gross margin peak was 61% in FY18Q4).
Operating cash flow was $1.401B; operating cash flow has climbed out of the trough (peak was $5.2B in FY18Q4); free cash flow negative for five consecutive quarters.
GAAP loss of $1.234B, vs. a $1.43B loss last quarter; non-GAAP loss of $1.048B; guides FY24Q2 GAAP loss of $500M, non-GAAP loss of $300M (net income peak was $4.3B in FY18Q4).
Business Segments:
DRAM revenue was $3.427B, up 21% year over year, first growth in six quarters, accounting for 73% of revenue; DRAM bit shipments up low-20s% sequentially; DRAM ASP up low single digits sequentially.
NAND revenue was $1.23B, up 12% year over year, first growth in six quarters, accounting for 26% of revenue; NAND bit shipments down mid-teens% sequentially; ASP up 20% sequentially.
Expects 2024 pricing to continue recovering, but next quarter both DRAM and NAND bit shipments to decline, potentially extending into FY24Q3; 2025 industry TAM to set a new record.
Server shipments are expected to decline by a low double-digit percentage year over year in 2023 and grow by a mid-single-digit percentage in 2024; AI demand is robust; LP5x products will be used in NVIDIA Grace CPUs; high-density 1-beta 128GB DDR5 using 32Gb single die is expected to contribute revenue in 2024Q2 and ramp rapidly in FY25; data center SSD revenue market share has hit a new high for two consecutive quarters and will continue to grow in FY24.
HBM3E samples were shipped this quarter and are in final-stage validation with NVIDIA GH200 and H200; volume production will begin in early 2024, contributing several hundred million dollars in revenue for the full year, weighted toward the second half; full-year capacity is sold out; HBM will continue to grow in 2025 and will eventually match the company's DRAM market share.
PC shipments are expected to grow by a low- to mid-single-digit percentage year over year in 2024; the first 1-beta 16Gb DDR5 PC product completed customer qualification this quarter; client/consumer SSD bit shipments hit a record high, as did client SSD QLC bit shipments; QLC now accounts for the bulk of SSD bit shipments; 232-layer NAND began shipping this quarter.
The smartphone market is showing signs of recovery; year over year, smartphone DRAM and NAND bit shipments grew this quarter while overall ASP declined; sequentially, NAND bit shipments and overall ASP grew; global smartphone shipments are expected to grow slightly year over year in 2024; 1-beta 24GB LP5x DRAM + 232-layer UFS 3.1 NAND mobile products have begun sampling.
Automotive revenue hit a record high for the period; automotive design wins remain strong; industrial revenue grew by a double-digit percentage sequentially, and industrial demand is beginning to recover.
Earnings Call Highlights:
Near-term sequential growth will be driven primarily by price increases rather than shipment growth; price increases will drive continued gross margin improvement in FY24.
Operating cash flow is expected to improve significantly in FY24 H2, and free cash flow is expected to turn positive in FY24 Q4.
HBM CAGR over the next several years will exceed 50%, more than three times that of DRAM; 2023 is the true first year of HBM; although HBM accounts for less than 5% of DRAM bit shipments, its relative pricing and revenue contribution are very high.
1-beta DRAM and 232-layer NAND yield ramps are ahead of the prior generation; the majority of bit shipments are currently 1-alpha, 1-beta DRAM, 176-layer NAND, and 232-layer NAND; 1-gamma EUV DRAM remains on track for volume production in 2025.
HBM3/3E will crowd out traditional DRAM capacity; FY24 DRAM/NAND bit supply growth will be lower than demand growth; DIO was 159 days this quarter, down 11 days sequentially; excluding strategic inventory, DIO was 142 days; FY24 DIO is expected to decline further, with the target still at 120 days.
FY24 capex is $7.5-8.0B, up slightly year over year, primarily for HBM3E investment; FY24 WFE capex is expected to continue declining year over year; the Xi'an expansion has received regulatory approval.
Overall, Micron's earnings slightly beat expectations; gross margin will turn positive a quarter earlier next year, and price increases will drive continued gross margin improvement throughout the year; once gross margin returns above 25%, net income has a chance to turn positive as well. In addition, HBM3E is progressing steadily, with full-year capacity sold out.
However, from the earnings call, management's guidance for the 2024 semiconductor environment (excluding AI) remains a weak recovery, with no significant shipment growth in sight.
