Micron sees data center-driven record sales, but guidance disappoints

Micron Technology reported record fiscal first-quarter revenue driven by data center SSD sales, which now represent over half of total revenue. While HBM shipments doubled quarter over quarter, the company's fiscal second-quarter guidance fell below expectations due to weakening demand in non-AI segments. However, AI-driven growth prospects remain strong for fiscal 2025.

Micron Technology Inc. reported robust financial results for the fiscal first quarter that ended in November, reflecting significant year-over-year growth. The company achieved a revenue of US$8.71 billion, marking an 84% increase compared to the previous year.

In terms of profitability, Micron recorded an operating income of US$2.39 billion, a remarkable turnaround from the previous year's loss of US$955 million. The operating income margin improved considerably to 27.5% from 20.2% a year ago, slightly exceeding the estimated margin of 27%.

The company's fiscal first-quarter performance met or exceeded the predicted midpoint in its guidance range for revenue, gross margins, and earnings per share.

Technology advancement and cost reduction

For DRAM development, Micron continues to ramp its 1β technology node, which supports HBM3E and is preparing to ramp its 1γ technology node using EUV in calendar 2025. Looking ahead to fiscal year 2025, the company projects front-end cost reductions for DRAM, excluding HBM, to fall within the mid- to high-single-digits percentage range. Meanwhile, front-end cost reductions for NAND are expected to reach the low-teens percentage range.

Data center dominance

A key highlight was the impressive surge in data center revenue, which skyrocketed by over 400% year over year and increased 40% quarter over quarter, marking the first time data center revenue comprised more than half of the company's total revenue. This stellar performance was driven by record revenue in data center SSDs, alongside setting new records in market share for both data center and overall SSDs.

Additionally, the company reported better-than-anticipated performance in HBM shipments, with HBM revenue more than doubling quarter over quarter. Around 13% of Micron's total revenue came from its largest data center customer. The company projects the total addressable market for HBM to expand significantly, from US$16 billion in 2024 to over US$100 billion by 2030.

Expanding HBM customer base

Micron has revised its outlook for server unit growth, now expecting it to reach the low teens in 2024, driven by increasing AI demand and a strong traditional server refresh cycle. This growth is anticipated to continue into 2025. The company's HBM business has shown significant progress, more than doubling its revenue quarter over quarter, thanks to improved execution on yield and capacity expansions.

Micron's HBM3E 8-High has been integrated into Nvidia's Blackwell B200 and GB200 platforms, offering full-speed operation and leading power efficiency. The company began high-volume shipments to a second major HBM customer this month and plans to start similar shipments to a third large customer in the first quarter of the coming year, widening its HBM client base.

The company's HBM3E 12-High has received positive feedback from leading customers, noted for its superior power consumption—20% lower than competitors—while providing 50% higher memory capacity and performance. Micron expects to generate multiple billions in revenue from HBM by fiscal 2025.

The forthcoming HBM4 is expected to maintain leadership in market timing and power efficiency, with a performance boost of over 50% compared to HBM3E. The company anticipates a high-volume industry ramp-up of HBM4 in 2026, with development efforts for HBM4E already underway with several customers.

Supply dynamics and inventory adjustment

The supply of leading-edge DRAM remains restricted due to strong demand in sectors like data center DRAM, a trend expected to support business outcomes through fiscal and calendar 2025.

While reductions in customer inventory, particularly in consumer-focused segments combined with seasonal variations, were expected to affect the fiscal second quarter bit shipments, the impact has proven more significant than previously anticipated, resulting in a weaker outlook.

Nevertheless, Micron expects this adjustment period to be brief, projecting that customer inventories will stabilize by spring, paving the way for improved bit shipments later in fiscal and calendar 2025.

Conservative guidance

Micron's projections for the second quarter suggest a revenue range of US$7.7 billion to US$8.1 billion, falling short of the Bloomberg Consensus estimate of US$8.99 billion. The company also anticipates a gross margin between 37.5% and 39.5%, below the consensus estimate of 41.3%.

Bloomberg Intelligence released a note saying that the outlook was below expectations by 12%, primarily due to weaker demand in the smartphone, PC, and automotive sectors, which likely negatively impacted memory pricing in the first half of the calendar year. This decline in demand was more than counterbalanced by a rise in data center strength, which is boosting the demand for high-bandwidth memory, high-capacity DRAM modules, and enterprise solid-state drives.

According to Vital Knowledge, the forecast indicates a more noticeable weakness in non-AI and data center end markets, although the prospects for AI remain extremely optimistic. Additionally, it suggests that the inventory correction is likely to be relatively short, paving the way for significant improvement in Micron's results in the second half of its fiscal year.

Source: Micron, December 2024

Source: Micron, December 2024