Micron Tech: Storage winter is over, price increase welcomes spring

Micron Technology (MU.O) released its fiscal first-quarter earnings report for the 2024 fiscal year (ending in November 2023) after the US stock market on December 21, 2023. The key points are as follows:

Overall Performance: Revenue and Gross Margin Exceeded Expectations. Micron Technology's total revenue for the fiscal first quarter of 2024 was $47.26 billion, a year-on-year increase of 15.7%, surpassing market expectations ($45.37 billion). The revenue growth was mainly driven by the year-on-year growth of the DRAM and NAND businesses. Micron Technology achieved a net loss of $1.234 billion in the fiscal first quarter of 2024. Despite the improvement in revenue and gross margin, the company's losses continued to narrow.

Business Segments: Both DRAM and NAND Experienced Price Increases. DRAM and NAND accounted for 98% of the company's revenue, and both businesses saw double-digit growth this quarter. Specifically, the prices of DRAM and NAND both increased to varying degrees this quarter, indicating a positive industry outlook.

Outlook for the Next Quarter: The projected revenue for the fiscal second quarter of 2024 is $5.1-5.5 billion, a year-on-year increase of 12.1%, surpassing market consensus ($4.994 billion). The gross margin (non-GAAP) for the quarter is expected to be 11.5% to 14.5%, with a continued improvement in gross margin compared to the previous quarter.

Overall, Micron Technology's earnings report this time exceeded expectations. Both revenue and gross margin surpassed expectations, and the company's losses further narrowed. With the recovery of downstream product prices, both the DRAM and NAND businesses achieved double-digit growth.

Although inventory levels remained relatively high this quarter, the company did not continue to make inventory write-downs, indicating confidence in the current inventory situation. Overall, the company's operating conditions are gradually improving.

Looking at the guidance provided by the company for the next quarter, it is expected to achieve revenue of $5.1-5.5 billion for the fiscal second quarter of 2024, surpassing market consensus ($4.994 billion). The gross margin (non-GAAP) for the quarter is expected to be 11.5% to 14.5%, also exceeding market expectations (6.4%).**With the recovery of product prices, it directly drives the company's gross margin to rise.

Regarding the industry, the company believes that the demand for DRAM and NAND will both increase by double digits in 2024. With the recovery of the industry, the company's performance is also expected to continue to improve. The better-than-expected performance in this earnings report will provide support to the stock price in the short term.

The storage industry has obvious cyclicality. Although the company still had a loss of over 1 billion in the current quarter, the rise in stock price has already included some expectations of recovery. Looking at a longer period, the current market value of the company corresponds to a PE ratio of about 20 times, which is not cheap. The company's stock price needs to continue to break new highs, and it requires even more outstanding performance than expected.

The following is Dolphin Research's specific analysis of Micron's earnings report:

I. Overall Performance: Revenue & Gross Margin, both exceeded expectations

1.1 Revenue

Micron's total revenue for the first quarter of the 2024 fiscal year was $4.726 billion, a year-on-year increase of 15.7%, exceeding market expectations ($4.537 billion). This quarter's revenue finally stopped declining and rebounded, mainly due to the year-on-year growth of the company's core businesses, DRAM and NAND. After experiencing a period of decline, the prices of DRAM and NAND have both risen.

1.2 Gross Margin

Micron achieved a gross margin of -$0.35 billion in the first quarter of the 2024 fiscal year, returning to the breakeven line.

The company's gross margin for this quarter was -0.7%, and the rebound in gross margin was mainly driven by price increases and product mix. Considering that the company's current inventory is still at $8.276 billion, which is relatively high, it to some extent limits the rapid recovery of gross margin.

Although Micron's current inventory is still relatively high, the company has not made any inventory write-downs in the past two quarters. With the improvement of the industry, the company is confident in its current inventory situation.

Combined with the company's guidance for the next quarter, the price increase of products is also expected to drive the company's gross margin to further rise to around 13%.

1.3 Operating Expenses

Micron's operating expenses for the first quarter of the 2024 fiscal year were $1.108 billion, a year-on-year increase of 0.7%. The operating expense ratio for this quarter remained stable at 23.4%.

Looking at the breakdown of expenses:

1) Selling and administrative expenses: This quarter was $263 million, a year-on-year increase of 4.8%. The selling and administrative expense ratio was 5.6%, a decrease of 0.5 percentage points compared to the same period last year, mainly due to the increase in revenue. There is a certain relationship between sales expenses and revenue performance, while administrative expenses are relatively rigid;2) Research and Development Expenses: In this quarter, the company spent $845 million on research and development, a decrease of 0.5% compared to the same period last year. Research and development expenses are the largest source of operating expenses for the company, and the research and development expense ratio remained at 17.9% this quarter. As a technology company, the company places great emphasis on research and development capabilities. With the company and the industry showing positive signs, Micron's research and development expenses have also started to rebound on a MoM basis.

1.4 Net Profit Situation

In the first quarter of fiscal year 2024, Micron achieved a net loss of $1.234 billion, with the loss continuing to narrow. In this quarter, the company's net profit margin was -26.1%. The narrowing of the company's loss in this quarter was mainly driven by the recovery in downstream product volume and prices.

This quarter marks the third consecutive quarter of MoM growth, and the company has passed the trough period in terms of performance.

II. Business Segments: DRAM and NAND, both experiencing price increases

From Dolphin Research's in-depth analysis of Micron in the past, "Micron: Has the Winter for Memory Chip Giants Ended?", the company's largest source of revenue is memory chips. From the latest financial report, DRAM and NAND are still the most important sources of revenue for the company, accounting for a combined total of 98%. Therefore, the changes in Micron's business mainly depend on the situation of the DRAM and NAND businesses.

2.1 DRAM

DRAM is the company's largest source of revenue, accounting for over 70%. In this quarter, the company's DRAM business revenue rebounded to $3.427 billion, a year-on-year increase of 21.2%. This was mainly driven by the recovery in the industry, with the DRAM business benefiting from the simultaneous increase in product volume and prices.

In this quarter, Micron's DRAM business grew by 24.4% on a MoM basis, with shipment volume increasing by over 20% and prices experiencing a low single-digit increase.

Dolphin Research believes that the DRAM industry has shown signs of recovery this quarter, with overall product pricing seeing some improvement. Taking DDR4 8G (1G*8) eTT as an example, the product price has rebounded from a low point of $1.02 in early September 2023 to around $1.2 at present.

2.2 NAND

NAND is the company's second largest source of revenue, accounting for nearly 30% of the total. In this quarter, the company's NAND business revenue reached $1.23 billion, a year-on-year increase of 11.5%. Although the growth rate of NAND is not as high as DRAM, the industry is also showing signs of recovery.

In this quarter, Micron's NAND business grew by 2.1% compared to the previous quarter. Although the shipment volume of NAND in this quarter decreased by about 15%, the average selling price of the company's NAND products increased by around 20%.

Looking at the market price of NAND, taking NAND Flash 32Gb 4G*8 MLC as an example, the price in early September 2023 was $2.063, and the current price has also rebounded to $2.07.

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Dolphin Research's analysis reports on Micron and semiconductor-related articles:

Earnings Season

September 28, 2023, Earnings Report Review: "Micron Technology: Virtual Recovery, Real Downturn"

September 28, 2023, Conference Call: "When Will the Inventory Problem Be Solved and Prices Start to Rise?"

June 29, 2023, Earnings Report Review: "Micron Technology: AI Wave Surges, Turning Point Approaching?"

June 29, 2023, Conference Call: "Clearing the Inventory, AI Ignites Again (Micron 3QFY23 Conference Call)"

March 29, 2023, Conference Call: "Emerging from the Worst Period, Semiconductor Industry May See the Dawn (Micron FY23Q2 Conference Call)"

March 29, 2023, Earnings Report Review: "Micron's 'Great Bleeding' May Not Be a Bad Thing"In-depth

April 13, 2023, "Micron: GPT cools down, no hindrance to storage bottoming out" (source)

March 15, 2023, "Micron: Has the winter for storage chip giants passed?" (source)

Semiconductor industry-related research

March 7, 2023, "NVIDIA: Will there be a big turnaround after the magical performance?" (source)

December 29, 2022, Semiconductor industry review, "Semiconductor avalanche? True resilience comes after the most severe decline" (source)

June 24, 2022, Semiconductor industry review, "Order cancellations, is the semiconductor industry really going to 'change'?" (source)

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