On December 18, 2023, after the trading hours on Wall Street, Micron Technology, a prominent player in the memory chip manufacturing industry and a key member of the “AI boom,” disclosed their financial results for the first quarter of fiscal year 2025, ending November 28, 2023. The results showcased a remarkable turnaround as the company shifted from a loss to profitability, with an impressive revenue increase of 84 percent year-over-year, reaching an all-time high.

Amidst these significant achievements, there was a notable concern: the company provided weak revenue guidance for the next quarter, leading to a sharp decline of more than 17 percent in after-hours tradingThis unexpected guidance overshadowed the otherwise positive earnings report, raising questions regarding the future trajectory of Micron's performance.

To better understand this landscape, let’s delve into the key takeaways from Micron’s financial report for the first quarter of fiscal year 2025:

1) **Key Financial Metrics**

Micron's revenue soared to $8.71 billion, marking an 84.1% increase compared to the previous year and a 12.4% increase from the preceding quarter, aligning perfectly with market expectations

The net income under GAAP was reported at $1.87 billion, with a non-GAAP net income increasing to $2.04 billion— a remarkable turnaround from a loss of $1.05 billion in the same period last yearAdjusted diluted earnings per share (EPS) stood at $1.79, surpassing analysts’ projections of $1.77 and flipping from a per-share loss of $0.95 a year agoCash flow from operations was recorded at $3.24 billion for the quarter, while capital expenditures amounted to $3.13 billion, resulting in an adjusted free cash flow of $112 million.

Micron’s board of directors also took a proactive approach by declaring a quarterly dividend of $0.115 per share, set to be paid out in cash on January 15, 2025, to shareholders registered by December 30, 2024.

2) **Segment-wise Performance**

Examining the various segments within Micron reveals a mixed bag of performanceThe Compute and Networking business unit saw an impressive 46% increase in revenue, hitting a record high of $4.4 billion, largely due to heightened demand for cloud server DRAM and a doubling of High Bandwidth Memory (HBM) revenue

On the other hand, the Mobile business unit experienced a 19% decline in revenue to $1.5 billion, driven largely by clients focused on reducing inventory amidst a challenging demand landscapeSimilarly, the Embedded business unit reported a 10% decrease in revenue, which fell to $1.1 billion as customers in sectors such as automotive and industrial continued to reduce inventory levelsContrastingly, the Storage business unit reported a modest growth of 3%, reaching $1.7 billion, propelled by record sales from data center solid-state drives (SSDs).

3) **Future Guidance**

The outlook for the next quarter indicates a revenue range between $7.7 billion and $8.1 billion, substantially underwhelming compared to analysts’ expectations of $8.99 billionFurthermore, the anticipated adjusted EPS for the upcoming quarter is projected to be between $1.33 and $1.53, falling short of the forecasted $1.91. The gross margin is expected to be between 37.5% and 39.5%, with capital expenditures estimated at $3 billion.

In the accompanying earnings release, Micron's President and CEO, Sanjay Mehrotra, highlighted the company’s impressive financial success in the first quarter, emphasizing that data center revenues have crossed the 50% threshold of the company’s total revenue for the first time

He noted a staggering 400% year-over-year growth in data center revenues, coupled with a 40% increase compared to the previous quarterWhile Mehrotra acknowledged that consumer-oriented markets may remain weak in the short term, he expressed optimism that growth will resume in the latter half of fiscal year 2025, especially in high-margin and strategically important sectors driven by AI-related demand.

Despite Micron Technology’s outstanding performance, there exists a cautionary note regarding the sharp decline in memory prices, especially for DRAM memory used in phones and personal computersAs consumer demand remains sluggish alongside surplus supply, this segment continues to drag down overall performance—a fact that Mehrotra openly acknowledgedApproximately 75% of Micron’s total revenue during the first quarter stemmed from DRAM, underscoring the dependence on a market that is currently in distress

alefox

Analysts, including Christopher Danely from Citigroup, continue to hold a positive view on Micron's stock with a “buy” rating and a target price of $150; however, they predict that the overall performance and guidance will slightly miss market expectations due to the weakness in the traditional DRAM segment.

Nevertheless, optimism prevails regarding a rebound in the DRAM market, positing that the oversupply situation affecting PCs and mobile devices is likely to resolve itself by spring 2025. On the horizon, the robust growth of the data center market—projected to account for a growing share of Micron’s sales—is expected to help mitigate the challenges caused by the sluggish consumer memory market.

Investors are currently banking on Micron’s strategic position within the High Bandwidth Memory (HBM) chip market, predominantly utilized in AI chips

This type of memory is crucial for enhancing performance while reducing power consumption in AI systemsFor instance, Micron's HBM products have been integrated into NVIDIA's advanced H200 AI chip and the newly developed Blackwell systems, placing Micron among a select few companies directly engaged with the rapidly expanding AI marketGiven this context, the CEO predicts that the global HBM market could surge to $25 billion by 2025—a stark increase from $4 billion in 2023—driving the growth of the memory chip market into the $204 billion range by 2025. Furthermore, Micron estimates that the target market for HBM chips could increase fourfold to over $100 billion by 2030.

In closing, Micron Technology is clearly positioned for significant growth, propelled by AI-driven consumption of memory chips across multiple sectors, including data centers, smartphones, and PCsThe impending update cycles for PCs, along with an expected surge in smartphone market demands, may further bolster Micron's growth, despite a current stock price that reflects a 34% decrease from its 52-week high reached in mid-June