AI boom supports sales but profitability is worrying: Micron Technology warns of losses this quarter, stock falls over 4% after hours | Earnings Report

Under the demand-driven AI boom, American storage chip giant Micron Technology's sales performance in the past quarter exceeded expectations, but its profitability remains a concern. The unexpected loss guidance for this quarter may not narrow significantly compared to the previous quarter, but may instead expand.

After the financial report was released, Micron Technology's stock price in after-hours trading, which had risen by 0.4%, plummeted. Currently, the after-hours decline has expanded to over 4%.

Fourth quarter revenue exceeds expectations, loss lower than expected

After the US stock market closed on Wednesday, September 27th, Micron Technology announced its financial results for the fourth quarter of the 2023 fiscal year, which ended on August 31st, 2023. The loss was lower than market expectations, and the operating income was higher than expected:

• Fourth quarter revenue was $4.01 billion, a 40% decrease YoY and a 7% increase QoQ. Analysts expected $3.93 billion.
• Fourth quarter DRAM memory revenue was $2.8 billion, with an average selling price decreasing by a high single-digit percentage QoQ. NAND flash memory revenue was $1.2 billion, with an average selling price decreasing by around 15% QoQ.
• The adjusted non-GAAP loss per share (EPS) for the fourth quarter was $1.07, while analysts expected a loss of $1.18 per share.
• Fourth quarter operating loss was $2.11 billion, while analysts expected a loss of $1.25 billion.
• The adjusted gross margin for the fourth quarter was -9.1%, higher than the analyst's expected -10.2%.
• Fourth quarter operating cash flow was $249 million, significantly lower than the analyst's expected $1.17 billion.

Throughout the 2023 fiscal year, Micron's revenue was $15.5 billion, a 49% decrease YoY. DRAM memory revenue decreased by 51% YoY to $11 billion, accounting for 71% of total revenue. NAND flash memory revenue decreased by 46% to $4.2 billion, accounting for 27%.

First quarter loss guidance median remains the same as the previous quarter, not as expected to narrow by 10% QoQ

Overall, Micron Technology's performance in the fourth quarter exceeded market expectations. The performance guidance is mixed, with sales still stronger than expected, but the profitability situation has not improved. The specific guidance is as follows:

• Micron expects first quarter revenue for the 2024 fiscal year to be $4.4 billion, with a range of $4.2 billion to $4.6 billion, which is higher than the analyst's expected $4.21 billion.
• It is expected that the adjusted loss per share for the first quarter will be $1.07, with a fluctuation range of $0.07, ranging from $1 to $1.14. The median value remains the same as the fourth quarter. According to the high-end loss, the MoM expansion is 6.5%, and according to the low-end loss, the MoM contraction is 6.5%. Analysts expect the loss per share to narrow by 10.3% QoQ to $0.96.

Due to the high bandwidth storage chip demand brought by AI applications, some investors had hoped that Micron could withstand the impact of the slow recovery in other terminal markets with its AI-related products. However, Micron disappointed these investors based on the guidance for the new quarter.

However, during the earnings conference call after this earnings report, Micron Technology brought some good news. It is expected that next year, it will start producing high-profit AI chips using high-bandwidth memory.

Micron Technology stated that capital expenditures for the fiscal year 2024 will be "slightly higher than" the level of fiscal year 2023, and it is expected that the pricing and profitability of the company will improve in fiscal year 2024.

Micron also mentioned that the inventory of most customers, including the automotive, personal computer (PC), and smartphone sectors, has returned to normal levels.

According to the Micron earnings report, the inventory of most customers in the automotive, PC, and smartphone markets is currently at normal levels, and the inventory of data center customers is also improving, possibly returning to normal at the beginning of the calendar year 2024.

Micron's CEO, Sanjay Mehrotra, stated during the earnings report release that in fiscal year 2023, the company faced challenges in the memory and storage industry environment. It is expected that in 2024, the market recovery will take shape, and with the expanding impact of AI, not limited to data centers, the overall potential market industry revenue in 2025 will reach a record high.