Memory leader Micron opened semiconductor earnings season. FY24Q3 corresponds to March through May 2024.
Micron FY24Q3 Results:
Revenue was $6.811B, up 82% year over year and 17% sequentially; revenue has grown year over year for three consecutive quarters; FY24Q4 revenue is guided at $7.6B, up 90% year over year and 12% sequentially (the revenue peak was $8.4B in FY18Q4).
GAAP gross margin was 26.9%, up 8.4 percentage points sequentially (the gross margin peak was 61% in FY18Q4).
Operating cash flow was $2.482B, up 104% sequentially, with an operating margin of 11% (operating cash flow peak was $5.2B in FY18Q4); free cash flow turned positive for the first time after six consecutive negative quarters.
GAAP net income was $332M, positive for the second consecutive quarter; non-GAAP net income was $702M, also positive for the second consecutive quarter; FY24Q4 GAAP net income is guided at $685M, non-GAAP net income at $1.213B (net income peak was $4.3B in FY18Q4).
Business Segments:
DRAM revenue was $4.692B, up 76% year over year, growing for the third consecutive quarter, accounting for 69% of revenue; DRAM bit shipments declined mid-single-digits sequentially, while ASP rose 20% sequentially.
NAND revenue was $2.065B, up 104% year over year, growing for the third consecutive quarter, accounting for 30% of revenue; NAND bit shipments grew high-single-digits sequentially, while ASP rose 20% sequentially.
Most data center customers' inventories have normalized, with demand continuing to grow; PC and smartphone customers are restocking on expectations of future memory price increases, and AI PC and AI smartphone demand is growing faster, but supply is constrained as DRAM/NAND capacity is prioritized for data center customers.
Next quarter DRAM bit shipments are expected to be flat sequentially, while NAND bit shipments are expected to grow slightly; despite a near-term slowdown in smartphone and PC demand, ASPs are expected to continue rising in the second half; bit shipments are expected to resume growth by year-end; data centers remain the primary growth driver, led by HBM and high-density DIMMs, along with data center SSDs.
By End Market:
Data center revenue grew 50%+ sequentially this quarter, with data center SSD revenue doubling sequentially to a new high and market share also reaching a new high; hyperscaler AI training and inference demand is robust, traditional compute and storage demand is recovering, and DRAM data center revenue also doubled year over year; 2024 server shipments are expected to grow mid-to-high single-digits (unchanged), with AI servers growing significantly and traditional servers growing modestly.
HBM3E began ramping this quarter, contributing over $100M in revenue (SK Hynix Q1 HBM revenue was ~$700M), with gross margin above DRAM (DRAM gross margin is above the corporate average); FY24 HBM revenue is expected to be in the hundreds of millions, reaching multiple billions in FY25; Micron expects its 2025 HBM bit market share to match its DRAM bit market share; 2024/2025 HBM capacity is sold out; 12-high HBM3E samples have been shipped, with volume ramp expected in 2025 and a significant increase in shipment mix; the company remains optimistic about its technology leadership in HBM4/HBM4E.
High-density 1-beta 128GB server DDR5 modules have completed qualification, expected to contribute hundreds of millions in revenue in FY24H2; data center customers are very interested in 1-beta LPDRAM products; data center 232-layer 30TB SSD bit shipments tripled, with data center SSD gross margin above the overall NAND gross margin.
2024 PC shipments are expected to grow low-single-digits year over year (unchanged); the company is optimistic about the replacement cycle driven by Windows 10 end-of-life in 2025, Windows 12 launch, and AI PCs; AI PC DRAM specs are 40-80% higher than traditional PCs.
MBU operating margin was 19% this quarter, turning positive for the first time after six consecutive negative quarters; 2024 smartphone shipments are expected to grow low-to-mid single-digits year over year (unchanged); AI smartphone DRAM specs are 50-100% higher than non-AI smartphones.
Industrial and consumer demand remains unstable, though the company is long-term optimistic; automotive revenue hit a new high.
Earnings Call Highlights:
2024 DRAM/NAND bit demand is expected to grow mid-teens%; medium-term DRAM bit demand CAGR is expected at mid-teens%, NAND at high-teens%; 2024 DRAM and NAND are expected to be undersupplied; FY24 company DRAM/NAND wafer capacity is expected to be down double-digits from the FY22 peak.
Excluding HBM, DRAM backend costs are expected to decline high-single-digits in FY24H2, and NAND backend costs low-teens%, mainly due to 1-beta and 232-layer advanced nodes; CHIPS and Science Act government subsidies total approximately $6.1B.
Currently 80%+ of DRAM bit shipments are on 1-alpha and 1-beta nodes, and 90%+ of NAND bit shipments are on 176-layer and 232-layer nodes; 1-gamma EUV DRAM and next-gen NAND are on track for 2025 volume production.
FY24 capex is guided at $8B (raised), with WFE capex continuing to decline year over year; FY25 capex as a percentage of revenue is expected in the mid-30s%, with quarterly average capex above $3B; the new Idaho and New York fabs are expected to account for more than half of the FY25 capex increase, coming online in FY27 and FY28 respectively; future capex will be primarily DRAM-focused, including HBM, with NAND a smaller share, as NAND technology transitions are relatively easier.
HBM3E consumes 3x the wafers of DDR5, and HBM4 will consume even more, constraining non-HBM DRAM capacity.
DIO was 155 days this quarter, down 5 days sequentially, and is expected to fall to 120 days in FY25 excluding strategic inventory.
Overall, Micron's results were in line with expectations, with margins continuing to recover, but without the explosive beat some investors hoped for—after all, Micron is not a top-tier player in the current HBM market; SK Hynix's Q2 results bear watching. Going forward, HBM3E and high-density LP5 in AI servers remain Micron's two key growth drivers.
After Nvidia's earnings, the market again fantasized about explosive results from semiconductor companies beyond Nvidia, but the reality is the semiconductor market has not fully recovered, and expectations are running too far ahead. Even Broadcom, with its much-touted ASIC custom business, posted only 6% year-over-year semiconductor revenue growth, significantly lagging TSMC's revenue growth.
The market now values Micron far above typical cyclical valuations. From a full-company earnings perspective, Micron's FY25 revenue hitting a record high is a given, given HBM exposure plus a memory recovery. However, management guided for FY25 HBM revenue of "several billion dollars," a fairly wide range that warrants further observation.
How to value Micron is subjective, but just don't turn it into another Cisco.
