Micron beat estimates on the top and bottom line in Q4, driven by strength in data center DRAM/HBM and a record for NAND. In addition, the company’s Q1 guide far exceeded consensus estimates. Margins expanded sequentially primarily due to HBM and operating cash flow also saw significant sequential growth (whereas free cash flow was much lower due to higher capex).
The report looks to have eased concerns as there were quite a few analyst downgrades following the conferences held in August. We were net buyers in September of Micron, and so we are pleased to see the air cleared on this stock. Analysts had downgraded (and even double downgraded) the stock on comments that bit shipments would be flat to slightly up. The report revealed that despite flat DRAM bit shipments, prices increased in the mid-teens for DRAM, leading to the beat. For NAND, bit shipments increased in the high single-digit percentage and prices increased in the high single-digit percentage range.
Management said they “forecast record revenue in fiscal Q1 and a substantial revenue record with significantly improved profitability in fiscal 2025.” Driven by strong HBM demand, management added that its “mix of data center revenue reached a record level in fiscal 2024, and we expect will grow significantly from here in fiscal 2025.”
Revenue
Micron reported revenue growth of 93% YoY to $7.75 billion in Q4, closing out FY24 with nearly 62% YoY growth to $25.1 billion in revenue. FY24’s recovery was broad-based, with DRAM and NAND both reporting substantial YoY increases.
- DRAM revenue increased 14% QoQ to $5.3 billion in Q4, representing 69% of total revenue. For FY24, DRAM revenue totaled $17.6 billion, increasing 60% YoY.
- NAND revenue rose 15% QoQ to a record $2.4 billion in Q4, representing 31% of total revenue. For FY24, NAND revenue was $7.2 billion, increasing 72% YoY.
For Q1, management guided for revenue growth of nearly 84% YoY to $8.7 billion at midpoint, easily surpassing the $8.2 billion consensus estimate. Q1’s guide still points to a 900 bp QoQ deceleration with Q4 remaining Micron’s peak growth quarter.
Current estimates for FY25 revenue sit at $37.6 billion for 50% YoY growth, though it’s likely that this gets revised higher in the coming days based on the size of Q1’s guidance beat.
Margins
Micron topped all of its guided figures for margins in the fourth quarter, with gross, operating and net margin all significantly expanding sequentially. For Q1, this expansion is set to continue, with management guiding for operating margin to expand to the mid to high 20% range.
- GAAP gross margin in Q4 was 35.3%, ahead of management’s guide for 33.5% and expanding from 26.9% the prior quarter. Adjusted gross margin was 36.5%, expanding from 28.1% last quarter and (9.1%) in the year ago quarter. Management said that in Q4, “HBM remained accretive to both DRAM and overall company gross margins.”
- For Q1, management guided GAAP gross margin of 38.5%, implying another sequential expansion of ~320 bp. Adjusted gross margin was guided at 39.5%, Management emphasized that Q1’s gross margin “is projected to improve sequentially primarily on better pricing and portfolio mix.”
- GAAP operating margin in Q4 was 19.6%, up 9 percentage points sequentially, and ahead of management’s guide for 17.8%. Adjusted operating margin was 22.5%, up from 13.8% last quarter and ahead of the guide for 20.5%.
- For Q1, management’s guided operating expenses implied a GAAP operating margin of 24.6%, another 5 percentage point sequential increase.
Micron closed out FY24 with significant improvement in both gross and operating margin:
- FY24 GAAP gross margin was 22.4%, up more than 31 points from (9.1%) in FY23.
- FY24 GAAP operating margin was 5.2%, up more than 42 points from (37%) in FY23.
Net margins also significantly improved due to the increased leverage.
- For Q4, net margin was 11.4%, up from 4.9% last quarter as net income rose more than 167% sequentially to $887 million. Adjusted net margin was 17.3%, up from 10.3% last quarter.
EPS
GAAP EPS was $0.79 in Q4, up more than 163% QoQ from $0.30 in Q3 and a substantial improvement from a loss of ($1.31) in the year ago quarter. Adjusted EPS was $1.18, up 90% QoQ from $0.62 in Q3 and again a significant improvement from ($1.01) in the year ago quarter. Management said this was “driven by better pricing and profitability.”
What these numbers reflect is that Micron has officially bottomed on EPS and is firmly returning to positive growth.
Micron guided for sequential growth to continue, expecting Q1’s GAAP EPS to be $1.54, up nearly 95% QoQ. Adjusted EPS was guided at $1.74, well ahead of estimates for $1.59, and it’s likely to push Q2 and Q3 estimates higher as well.
Cash Flows and Balance Sheet
Micron grew operating cash flow by nearly $1 billion QoQ; however, increased capex kept adjusted FCF growth to a minimum.
Q4’s operating cash flow was $3.41 billion, or 44% of revenue, up from $249 million or 6.2% of revenue in the year ago quarter. For FY24, operating cash flow totaled $8.51 billion, increasing more than 445% YoY from $1.56 billion in FY23.
Adjusted FCF in Q4 was just $323 million, or 4.2% of revenue, compared to $425 million in Q3, as Micron spent ~$3.1 billion on capex in the quarter. For FY24, adjusted FCF was minimal, at $386 million, or 1.5% of revenue, though this was a stark contrast to FY23’s adjusted FCF of ($5.44 billion), or (37.1%) of revenue.
It was stated capex would be meaningfully higher in fiscal 2025 at mid-30s percentage range to support “growth in both greenfield fab construction and HBM” investments, as Micron works to build out its fabs in New York and Idaho in FY25 and FY26. Capex totaled $8.1 billion in FY24, but management expects FY25 capex to be “meaningfully higher and at around the mid-30s percentage range of revenue,” suggesting capex easily surpasses $10 billion next year.
The company stated wafer capacity is below peak levels, partly due to an increasing mix of HBM that is reducing DRAM supply for traditional products. The capex spending is needed to continue to supply HBM. There is also a low-capex environment for NAND at the moment, and it was stated this would ultimately lead to healthy NAND supply-demand dynamics.
Inventory was $8.9 billion, or 158 days, and Micron expects to draw down this inventory to support revenue growth in FY25.
Cash, equivalents and investments totaled $9.16 billion, while debt totaled $13.4 billion.
Business Units
Compute and Networking (CNBU) revenue was $3.02 billion, up 14% QoQ and 152% YoY. This was significant growth acceleration, up from 85% YoY in Q3 and 59% YoY in Q2.
Management said that “data center server DRAM achieved a quarterly revenue record in fiscal Q4, driven by strong demand for high-capacity solutions as well as our continued ramp of HBM.” The company expects HBM TAM to grow from $4 billion in CY23 to over $25 billion in CY25. As a percent of overall DRAM, HBM will grow from 1.5% in 2023 to 6% in 2025. Micron reiterated it will be able to capture a similar market share of HBM as it has in DRAM, which was 21.5% of market share in early 2024.
Mobile (MBU) revenue increased 18% QoQ to $1.88 billion, though YoY growth of 55% decelerated from 94% YoY in Q3. Management said the growth was driven by seasonal product launches.
Micron provided a hint as to when investors can expect to see AI PC growth, which looks to be H2 2025: “PC unit volumes remain on track to grow in the low single-digit range for calendar 2024. We expect unit growth to continue in 2025 and accelerate into the second half of calendar 2025 as the PC replacement cycle gathers momentum with the rollout of next-gen AI PCs, end of support for Windows 10 and the launch of Windows 12.”
The timing was repeated again: “So that too plays a factor. And of course, I would just like to remind you that we have pointed out that overall smartphone and PC, unit growth will be occurring in 2025 and of course, increasing penetration of AI phones and second half, that acceleration, that growth will be obviously stronger than the first half.”
On average, PCs require 12GB of DRAM today with AI PCs needing a minimum of 16GB and up to 32 to 64GB of DRAM. We covered this previously here. Micron’s LP series for PCs offer are low-power DRAM modules that provide 60% lower power and up to 70% better performance with 60% space savings.
Mobile devices require 8GB of DRAM whereas AI-powered mobile devices will come with 12GB to 16GB of DRAM.
Storage (SBU) revenue rose 24% QoQ and 127% YoY to $1.68 billion, with the YoY growth rate accelerating from 116% in Q3. Management said the growth was “led by data center SSD, which reached a quarterly revenue record,” while NAND storage reached a record for the full year.
Embedded (EBU) was the only segment to record a sequential decline in Q4, with growth falling (9%) QoQ but rising 36% YoY to $1.17 billion. Management added that the “automotive segment achieved a new fiscal year revenue record for the fourth consecutive year.”
Earnings Call and Addt’l Commentary
The company stated they are upgrading their expectation for calendar 2024 industry DRAM bit demand growth to be in the high-teens percentage range. It was further stated: “In calendar 2025, we expect both DRAM and NAND industry bit demand growth to be around the mid-teens percentage range.”
The company also stated: “We see increasing DRAM and NAND content both in traditional as well as AI servers” and that “our mix of data center revenue reached a record level in fiscal 2024 and we expect will grow significantly from here in fiscal 2025.”
There is a slight slowdown in management’s guide for DRAM for next year, as it’s being stated as growth in the high teens is expected for 2024 while growth in the low teens is expected for 2025. As we noted in our pre-earnings writeup, the slowdown is coming from AI PCs and smartphones.
“At 2024, we have increased the outlook to high teens based on the strength in the data center. And 2025, as we look at it, just keep, in fact — mind two factors: one is we are now comparing it to the higher base of 2024, which has gone to high teens. So that, of course, impacts the percentage of the '25. And second piece is that, as we have noted, that smartphone and PC, which at the end market level are continuing to do fine.
But given for the 3 factors that we have mentioned in our earnings call script that the customers built some inventory. The sell-in is somewhat less than their sellout in terms of memory, and we have said that by spring of 2025, we expect in PCs customer inventory levels to get to healthier levels versus now, and these will continue to improve.”
Another factor is that HBM3e is leading to wafer capacity constraints. It has a 3:1 trade ratio, which which means it takes 3X more wafers to produce HBM3e.
High Bandwidth Memory (HBM)
We’ve covered the importance of HBM for some time now, which you can reference here.
This quarter, Micron started shipments of HBM3e which are 12 high, 36-gigabyte units. These units provide up to 20% lower power consumption and 50% higher DRAM capacity than its competitors’ 8 high, 24 gigabyte solutions. As Micron stated during the call when asked about competitors, the company’s strategy is to provide the best HBM on “planet earth.” Micron will continue to increase its mix of HBM3e 12 in early CY2025.
As GPUs move toward a 1-year road map, so will Micron. HBM4 will be shipping in 2026.
Last quarter, the stock sold off following commentary that Micron’s HBM is contracted 6-8 quarters out. The company reiterated this again, yet it’s clear the exact contract pricing details are not being disclosed. This was evident in the beat in today’s report.
This was an important statement regarding next year’s setup:
“And we are looking at strong momentum, not just with HBM. We have talked about multiple billions of dollars of revenue that we target to generate in our fiscal year 2025 from high-capacity DRAM modules as well as LP memory in data center, so these are all the elements that point to strong demand trends and demand trends driven by AI in data center as well as in smartphone and PCs where more and more content is required in an environment where the leading-edge supply is today tight.
So I think the opportunity is tremendous, and we see healthy demand supply balance and a constructive environment for our financial performance in fiscal 2025. And that's why we say with confidence that we'll deliver a substantial revenue record in fiscal year 2025, the significant improvement in our profitability as well.”
DDR5 SDRAM memory products reduce power consumption while doubling bandwidth. The lower power DRAM is assisted with LP5 solutions that increase speed while lower power requirements. The LPDDR designs were originally designed for mobile yet have been optimized for AI server infrastructure.
Data Center Storage up 300% in One Year
Micron’s strategy for vertical integration of SSDs has resulted in Micron seeing a “quarterly revenue record” of over $1 billion in revenue and data center SSDs in fiscal Q4. The company stated “our fiscal 2024 data center SSD revenues more than tripled from a year ago.”
Conference Commentary
As we covered in our pre-earnings report, conferences in August led to many analysts downgrading Micron. The first question on the call was about the confusion this caused.
Timothy Arcuri UBS Investment Bank
Mark, I guess my first question is, some of the assumptions in guidance. I think you've been saying kind of on the conference circuit that bits would be pretty flat in fiscal Q1 for both DRAM and NAND. Is that what you're still assuming so that most of the increase in the revenue is basically pricing? Is that correct?
Mark Murphy Executive VP & CFO
Tim, what we see now and we had provided a slight update in August, but we now see that DRAM bits, we expect to be up somewhat higher than what we had said before. We had said before they were going to be flat and then we revised that to flat to slightly up, and in this latest guide, we now view DRAM to be up somewhat higher from that. NAND bits, we expect to be sequentially flattish.”
Conclusion:
Micron had a fantastic earnings report and is sitting at an attractive valuation, which cannot be said for many AI stocks right now. The company has been doubted by Wall Street for most of the year, and yet this report easily places Micron as a top choice among AI peers as we head into 2025.
It makes sense Wall Street would doubt Micron in CY2024 as the company had several millions in HBM3 revenue this year, with is low compared to some of the heavyweights. Yet, the AI-related portion of its revenue is not only going to ramp next year, but it’s also accretive to margins. It’s this last piece that is key as AI markets such as custom silicon or AI servers have the opposite effect and weigh on margins. Keep this in mind as we move along.
We are glad to have Micron in our portfolio and are looking forward to building a bigger position in time.
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