Micron Technology, one of the world’s largest memory chip makers, reported better-than-expected quarterly results on December 20th and issued an upbeat revenue forecast for the current quarter, indicating a strong recovery in demand.
Financial Results Beat Expectations
For its fiscal first quarter ended December 1, Micron reported revenue of $4.09 billion, down 46% year-over-year but above Wall Street’s estimate of $3.99 billion (1). The company posted a net loss of $0.04 per share, compared to earnings per share of $0.29 a year earlier but beating expectations for a loss per share of $0.17 (2).
“We have entered a period of healthy inventory levels in the industry,” said Micron CEO Sanjay Mehrotra, indicating that channel inventory corrections are nearing completion, setting the stage for demand recovery (3).
| Financial Metric | Q1 2023 Result | Year-Ago Result | Wall Street Estimate |
|---|---|---|---|
| Revenue | $4.09 billion | $7.69 billion | $3.99 billion |
| EPS (non-GAAP) | $0.09 | $0.29 | $0.03 |
Table 1: Micron Q1 2023 financial results summary. Sources: 4, 5
Micron’s quarterly revenue declined significantly from last year mainly due to lower memory chip pricing, but the company managed to beat expectations due to strong demand from data center customers. Its earnings were helped by ongoing cost control initiatives.
Strong Growth Forecast for Current Quarter
More importantly, Micron provided an upbeat revenue outlook for the fiscal second quarter. The company expects revenue of $4.8 billion, plus or minus $200 million, compared to Wall Street’s estimate of $4.5 billion (6).
“We are bullish on demand for our products and solutions over the next decade,” said CEO Mehrotra, citing growing demand for memory and storage driven by AI, 5G, and automotive applications (7).
Micron’s strong guidance indicates it sees a sustainable recovery in memory chip demand, especially from data center customers. Several analysts upgraded their ratings on the stock following the results. For example, Deutsche Bank raised its target price to $60 from $55, while UBS increased its target to $75 from $70 (8).
The company’s shares rose over 8% in after-hours trading following its quarterly report and outlook. “We believe Micron is one of the best positioned memory suppliers heading into a cyclical recovery,” UBS analyst Timothy Arcuri wrote in a note (9).
Tailwinds: Data Center, AI, Automotive Demand
Several developments point to a strengthening recovery in Micron’s key end markets:
Data Centers – Micron is benefiting as large cloud players like Amazon AWS, Microsoft Azure and Google Cloud invest heavily to enhance services and capture growth in areas like artificial intelligence, machine learning, analytics and graphics (10).
AI Acceleration – Rising investment in AI inferencing infrastructure that processes neural networks is driving strong demand growth for memory and storage. Micron is well positioned to capitalize with its portfolio of high-bandwidth memory products (11).
Auto & Industrial – Automotive and industrial demand is rebounding as supply shortages ease. Electric vehicles, smart factories, 5G and IoT are strong multi-year growth drivers for Micron (12).
Inventory Normalization – Inventory corrections should be largely finished, setting the stage for restocking and recovery. Contract pricing is stabilizing and expected to firm up later this year (13).
Cost & Capex Control – Micron has implemented structural cost reductions and trimmed capital spending to align with demand. This positions it well financially through the downturn and recovery (14).
Macro Risks Remain
However, ongoing macroeconomic uncertainty poses risks to the pace of recovery. A potential recession could slow demand across some end markets.
Additionally, export restrictions aimed at limiting advanced semiconductor sales to China could constrain some revenue opportunities for Micron, as China represents over 20% of its sales.
Finally, lingering supply chain challenges could inhibit the company’s ability to fully capitalize on rebounding demand. But management expressed confidence these headwinds are manageable.
“There are risks from the economy, from trade restrictions, from supply chain constraints, but the opportunities for us exceed those risks,” CEO Mehrotra stated (15).
Long-Term Growth Potential
Micron believes memory and storage revenue can grow at a 15% CAGR to reach $500 billion by 2030, up from $150 billion in 2020. Several secular growth drivers underpin this forecast, including ubiquitous connectivity fuelling data growth, AI acceleration across end markets, and new data-intensive workloads emerging around areas like autonomous driving, IoT, blockchain, metaverse and more.
As a leading innovator of memory and storage solutions well aligned to key technology trends, Micron sees a bright future with sustainable top and bottom line expansion after navigating through this downturn.
“We have entered a period of healthy inventory levels in the industry,” reiterated CEO Mehrotra. “At the same time, powerful secular growth drivers for memory and storage, such as AI and 5G, set the stage for robust long-term demand.” (16)
With strengthening tailwinds driven by data center, AI and automotive demand, as well as stabilizing market conditions, Micron appears poised to benefit from a cyclical recovery this year while maintaining growth investments to capitalize on long-term opportunities.
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