Micron (MU.O) released its Q1 FY2025 financial report (ending November 2024) after the US stock market closed on December 19, 2024, Beijing time. The key points are as follows:

1. Overall performance: Revenue meets expectations, but gross margin faces challenges. Micron's total revenue for Q1 FY2025 reached $8.71 billion, a year-on-year increase of 84.3%, in line with market expectations ($8.72 billion). This quarter's revenue continued to accelerate, driven by growth in the company's DRAM business. Micron achieved net profit of $1.87 billion in Q1 FY2025, with profits continuing to improve. Driven by the ramp-up of HBM and rising prices of storage products, both the company's revenue and gross margin saw significant improvements, leading to a notable enhancement in the company's final profits.

2. Business segment performance: HBM is the main driver of performance. DRAM and NAND account for 99% of the company's revenue, with HBM being the primary driver of growth this quarter. Specifically, while $ Micron Tech.US's DRAM and NAND businesses both saw significant year-on-year increases this quarter, there was a clear divergence on a quarter-on-quarter basis. The DRAM business experienced a 20% quarter-on-quarter growth, while the NAND business saw a 5% decline. This is mainly because DRAM continued to grow driven by HBM, while the weakness in demand in traditional sectors directly led to the quarter-on-quarter decline in NAND business.

3. Outlook for next quarter: Q2 FY2025 revenue is expected to be $7.9-8.1 billion (a 9% quarter-on-quarter decline), lower than the market consensus ( $9 billion); quarterly gross margin (GAAP) is expected to be 36.5% to 38.5%, also a decline quarter-on-quarter, below the market consensus (41.3%).

Overall view of Dolphin: This quarter's financial report is mediocre, but the guidance for next quarter is "collapsed."

Micron's revenue and gross margin continued to recover this quarter, although the gross margin performance fell short of market expectations. While HBM continues to contribute incremental growth to the company, the impact of traditional downstream markets such as mobile phones led to a decline in prices for some storage products, which in turn affected gross margin performance.

In terms of business segments, the company's DRAM business still saw a 20% quarter-on-quarter growth this quarter. Driven by HBM, the DRAM business continued to show a rise in both volume and price; however, the company's NAND business experienced a 5% quarter-on-quarter decline this quarter. This was mainly influenced by inventory adjustments in downstream sectors such as mobile phones, automotive, and industrial, leading to a slight quarter-on-quarter decline in both shipment volume and average price of related storage products

Compared to the financial report of this quarter, the company's outlook for the next quarter is indeed "poor." It not only interrupts the company's continuous growth in revenue for seven consecutive quarters but also shows a decline of nearly $800 million quarter-on-quarter, with the gross margin likely to experience a quarter-on-quarter drop as well. This undoubtedly raises more concerns in the market: 1) Has the current storage upcycle for the company ended? 2) Is the company's HBM business growth hindered? This directly led to a 16% decline in the company's stock price after hours.

Considering the industry and the company's operating conditions, Dolphin believes that the decline in revenue for the next quarter is still mainly affected by the mobile phone and automotive sectors. From several perspectives: 1) The current traditional sectors are still in the inventory adjustment phase, and the company expects to gradually stabilize only in the second half of fiscal year 2025 (after March 2025 of the calendar year); 2) The company has further raised its total market size expectation for HBM next year to $30 billion (originally expected to be $25 billion), which is enough to show the company's confidence in the HBM business; 3) Recent rumors about NVIDIA adjusting the shipment structure of B200 and B300 will also affect Micron's HBM rhythm to some extent.

Overall, Micron's current business includes both traditional storage demand and AI-related demand such as HBM. The current performance base of the company is still influenced by traditional business, and the current downturn in traditional sectors will directly impact the company's upcoming business. As for the HBM business, which the market is concerned about for its growth potential, although its current revenue share is still less than 10%, the company continues to revise upward its growth expectations for next year. Therefore, the company's performance will be under pressure in the first half of fiscal year 2025, but with downstream inventory digestion and the ramp-up of HBM, the company's performance is expected to see a significant improvement in the second half of the year.

Here is Dolphin's specific analysis of Micron's financial report:

1. Overall Performance: Revenue Meets Expectations, Gross Margin Faces Obstacles

1.1 Revenue

Micron's total revenue for the first quarter of fiscal year 2025 was $8.71 billion, a year-on-year increase of 84.3%, in line with market expectations ($8.72 billion). The year-on-year increase in revenue this quarter was mainly driven by the price increase of the company's storage products, with the average shipment prices of the company's DRAM and NAND products both increasing by over 60% year-on-year.**

On a quarter-on-quarter basis, the company achieved a growth of 12.4% this quarter. Among them, the DRAM business still saw a quarter-on-quarter growth of 20% driven by HBM demand, while NAND experienced a quarter-on-quarter decline of 5%, mainly due to the impact of inventory adjustments in downstream sectors such as mobile phones, automobiles, and industrial applications.

1.2 Gross Margin Situation

Micron achieved a gross profit of $3.348 billion in the first quarter of fiscal year 2025, with the company's quarterly gross profit continuing to rebound. Among them, the company's gross margin for this quarter is 38.4%, lower than market expectations (39.3%). The increase in gross margin is mainly due to the rise in average prices of DRAM products and an increase in their proportion, but the weakness in some downstream sectors has affected the extent of the gross margin recovery. Although the company's current inventory is $8.705 billion, a decrease of 1.9% quarter-on-quarter. With the recovery in sales and the destocking in some downstream areas, the company's inventory turnover speed has accelerated, further adjusting the company's inventory structure.

1.3 Operating Expenses

Micron's operating expenses for the first quarter of fiscal year 2025 are $1.176 billion, a year-on-year increase of 6.1%. With revenue growth, the company's operating expense ratio has decreased to 13.5% this quarter.

In terms of itemized expenses:

1) Selling and Administrative Expenses: This quarter is $288 million, a year-on-year increase of 9.5%. The selling and administrative expense ratio is 3.3%, a decrease of 2.3 percentage points year-on-year, mainly due to the increase in revenue. Selling expenses are somewhat related to revenue performance, while administrative expenses are relatively rigid;

2) R&D Expenses: This quarter is $888 million, a year-on-year increase of 5.1%. R&D expenses are the largest source of the company's operating expenses, and the R&D expense ratio has decreased to 10.2% this quarter. As a technology company, the company places greater emphasis on R&D capabilities, maintaining R&D expenses at a relatively high level.

1.4 Net Profit Situation

Micron achieved a net profit of $1.87 billion in the first quarter of fiscal year 2025, in line with market expectations ($1.83 billion). The profit growth this quarter is mainly attributed to the growth in DRAM business and the improvement in gross margin. In this quarter, the company's net profit margin is 21.5%, showing a significant improvement in profitability. The company's operating profit this quarter reached $2.1 billion, already at a relatively high position compared to past cycles.

II. Business Segment Situation: HBM is the Main Performance Driver

From the previous in-depth analysis of Micron by Dolphin Jun in the article "Micron: Has the Storage Chip Giant Survived the Winter?", the company's largest source of revenue is storage chips. From the latest financial report, DRAM and NAND are still the company's most important sources of revenue, together accounting for 99%. Therefore, to understand the changes in Micron's business, we mainly look at the situation of 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 grew to $6.39 billion, an increase of 86.5% year-on-year. Considering the performance of downstream sectors such as mobile phones and automobiles, Dolphin believes that the $1 billion quarter-on-quarter growth in the DRAM business mainly comes from the demand for cloud server DRAM and the revenue growth of HBM.

From the perspective of volume and price: the company's DRAM business grew by 20% quarter-on-quarter, with shipment volume increasing by about 7% quarter-on-quarter, and prices also rebounding by approximately 8%.

The simultaneous increase in volume and price this quarter is mainly driven by the demand from cloud servers, while some products in traditional sectors are under price pressure. Taking DDR4 16G (1G*16) 3200Mbps as an example, the product price has risen from a low of $2.89 in September 2023 to a high of $3.81, and then gradually fell back to $3.09, before rising again to the current $3.18 in December, while the average price in the company's fiscal quarter is clearly under pressure.

Regarding the HBM sector that the market is concerned about, the three leading companies in the industry have already upgraded their products to the latest HBM3E, with Hynix and the company's products already supplied to NVIDIA. According to YOLE's estimates, HBM products will be upgraded to the next generation HBM by 2026.

As for the concerns the market has about the company: 1) the sustainability of HBM growth; 2) competition from Samsung. Although there have been reports that Samsung has completed core certification for NVIDIA, information from the supply chain indicates that Samsung's production capacity during the H200 product cycle is limited. Regarding the overall Total Addressable Market (TAM) for HBM, the company has raised its 2025 expectation to over $30 billion. Currently, the company's share in HBM is only in the single digits, but it is expected to increase its share to around 20%, comparable to its share in the DRAM market.

As for the competition between GPU and ASIC, both require HBM. As long as the overall market grows, the demand for HBM will continue to rise. The specific difference is that B200 and MI325X require HBM3E, while Google's TPU v6 requires HBM3, which has slightly slower performance iteration requirements.

2.2 NAND NAND is the company's second-largest source of revenue, accounting for 26%. In this quarter, the company's NAND business revenue was $2.24 billion, an increase of 82.1% year-on-year. The year-on-year growth of NAND was mainly driven by the recovery of product average prices from the bottom.

However, on a quarter-on-quarter basis, there has been a decline starting this quarter, mainly influenced by weak demand in traditional downstream sectors such as mobile phones and automobiles. The market originally expected that the company's downstream would gradually emerge from the trough through inventory adjustments. However, based on current performance, the inventory adjustments in the company's downstream are still ongoing, and improvements may not be seen until the second half of the next fiscal year.

From the perspective of volume and price performance: Micron's NAND business declined by 5% quarter-on-quarter this quarter, with NAND shipments decreasing by about 2% quarter-on-quarter, and the average shipment price of NAND declining by about 3%. In terms of product price performance in the market, NAND Flash (128Gb 16G*8 MLC) has dropped from $4.9 to around $3.