Micron revenues surged to a first quarter record in its sixth consecutive growth quarter with AI a long-term revenue booster, despite posting an outlook that appeared to disappoint investors and led to a share price drop of more than 15 percent.
The US-based memory maker, which says it foresees SSDs replacing datacenter disk drives, reported revenues in the first quarter of its fiscal 2025, ended 28 November 2024, of $8.71 billion – up 84 percent year-on-year, and meeting its guidance. It posted a net profit of $1.87 billion in contrast to the year-ago $1.2 billion loss.
Despite this, shares were down by 16 percent yesterday in after hours trading, although they have since recovered slightly, after Micron posted an outlook for the next quarter for revenues of $7.9 billion +/-$200 million which represents a 36 percent increase year-on-year at the mid-point. Bloomberg shared a note saying the revenue forecast missed projections, “hurt by sluggish demand for smartphones and personal computers,” although it also saw “strong orders for components used in artificial intelligence computing.”
Micron also noted that it expects a substantial record in revenues, significantly improved profitability, and positive free cash flow in fiscal 2025.
Micron president and CEO Sanjay Mehrotra stated: “Micron delivered a record quarter, and our datacenter revenue surpassed 50 percent of our total revenue for the first time. While consumer-oriented markets are weaker in the near term, we anticipate a return to growth in the second half of our fiscal year. We continue to gain share in the highest margin and strategically important parts of the market and are exceptionally well positioned to leverage AI-driven growth to create substantial value for all stakeholders.”
Financial summary
- Gross margin: 38.4 vs -0.7 percent a year ago
- Operating cash flow: $3.24 billion vs $1.4 billion a year ago
- Free cash flow: $112 million vs -$333 million last year
- Cash, marketable investments, and restricted cash: $8.15 billion vs $6.7 billion a year ago
- Diluted EPS: $1.67 vs -$1.12 a year ago.
DRAM revenues of $6.4 billion were up 86.8 percent year/on-year. NAND sales pulled in $22 billion – a 78.9 percent Y/Y rise but a 5 percent fall sequentially as the total bits shipped went down along with average selling prices.
CFO Mark Murphy said in the earnings call that: “The NAND industry market conditions are weak, weaker than we had expected and … consumer market, PC, smartphones, demand is weaker, and inventory adjustments are occurring. Secondly, NAND datacenter SSD volumes moderated. And so, there’s this period of digestion.”
Micron sees datacenter SSD demand resuming growth in the second half of the fiscal year.
In general, Micron’s revenues are being driven by soaring AI demand. Datacenter revenue grew more than 400 percent year over year and 40 percent sequentially, reaching a record level, with datacenter revenue mix surpassing 50 percent of Micron’s revenue for the first time. Revenue from its largest datacenter customer was approximately 13 percent of total revenue – $1.13 billion. There was record revenue in datacenter SSDs and new records in market share for datacenter SSDs and overall SSDs. High-bandwidth memory (HBM) shipments were ahead of plan with a more than sequential doubling of HBM revenue. Micron’s HBM3E 8H product is designed into NVIDIA’s Blackwell B200 and GB200 GPU platforms.
The business unit performance reflected this DRAM and datacenter revenue pattern:
- Compute and networking: $4.4 billion, up 153.3 percent Y/Y and now nearly 50 percent of Micron revenues
- Storage: $1.7 billion, up 160.3 percent Y/Y, driven by SSDs and overtaking the mobile segment
- Mobile: $1.5 billion, up 16 percent Y/Y but down 19 percent Q/Q as phonemakers used existing inventories
- Embedded: $1.1 billion, up 6.1 percent Y/Y, but down 10 percent Q.Q as auto, industrial and consumer customers used up existing stock
The Chinese market for Micron’s products is changing as domestic suppliers gain more market share. Mehrotra said: “Consistent with analyst reports, we have seen an increase in bit supply at legacy technology nodes from a China-based DRAM and a China-based NAND supplier. In calendar 2024, analyst reports indicate that China-based supply will represent a mid-single-digit percentage of industry bit supply for DRAM and a high-single-digit percent of supply for NAND.” Specifically: “The competition that we see in China is more on the consumer side of the business and more on the lower end.”
Consequently: “We expect Micron’s sales of products to China-headquartered customers to be concentrated in the high end of our customers’ portfolio.”
Irrespective of the Chinese market, and taking the overall view, Mehrotra said: “Micron is in the strongest competitive position in its history, and we continue to gain share in all high-margin, strategically important product categories in our industry while maintaining overall stable bit share in both DRAM and NAND.”
Outlook
The backdrop for Micron’s revenue expectations is the Gen AI boom which it sees as a long-term growth opportunity, with the potential to transform the dynamics of its business. It says multi-modal models, post-training and chain-of-thought inferencing are all memory-intensive and can benefit from higher memory bandwidth and capacity. AI agents will become ever more capable and address vertical market consumer and enterprise use cases, “driving accelerating monetization of AI.”
It has upgraded its view of server unit percentage growth and expects it to reach the low teens in calendar 2024, fueled by strong AI demand as well as a robust traditional server refresh cycle. It also anticipates server unit growth continuing in 2025. It expects to generate multiple billions of dollars in datacenter SSD revenue in fiscal 2025 and to grow its market share again in calendar 2025.
HBM is another high point with Mehrotra saying: “Our HBM is sold out for calendar 2025, with pricing already determined for this time frame. In fiscal 2025, we expect to generate multiple billions of dollars of HBM revenue.”
In addition to outlook for the next quarter of a topline of $7.9 billion +/-$200 million , it also expects the HBM total addressable market (TAM) to grow 4x from the $16 billion level in 2024 to 2028, $64 billion, and to exceed $100 billion by 2030. Micron expects to have a similar HBM market share to its DRAM market share, which is about 20 percent.
Micron has cut its NAND capex for 2025 with the majority of capex supporting HBM. Mehrotra said: “Since NAND technology transitions provide a significant increase in overall bit output, the pace of technology transitions will … need to slow in order to align supply to industry demand. … In addition, we are reducing NAND wafer starts by a mid-teens percentage versus prior levels.” This supports WD’s view that the raw 3D NAND layer count growth race is over, being replaced by more measured transitions.
However, this doesn’t prevent another long-term Micron growth driver being high-capacity SSDs. In the next few years, Micron expects them to start displacing capacity HDDs in the datacenter. This suggests that Seagate, Western Digital and Toshiba will see lower datacenter HDD sales over the next five years. As nearline HDD sales to enterprise and hyperscaler datacenters represent the bulk of their revenues then this outlook is dire; it implies their industry is facing terminal decline unless they can overhaul NAND’s price, performance and IO speed. It also reinforces Pure Storage’s point of view that SSDs will replace HDDs.
