10.15.24
Sales were €7.5B in the quarter, and the company is forecasting a midpoint of €9.0B worth of revenue in the current quarter (Q4). Full year 2024 sales expected to be €28B and 2025 will be in the range of €30B to €35B. Bookings dropped sharply from €5.57B in Q2 to €2.63B in Q3. Bookings from memory companies declined for the fourth consecutive quarter. There was a huge volume of memory bookings in Q4-24, driven by China orders ahead of export restrictions. Memory bookings dropped by more than 50% the next quarter (Q1-24) and are down by more than 25% from Q1 to Q3. Sales to memory customers were down slightly from the second quarter but are still near all-time record levels. Total memory sales for the year are on pace to reach €7.71B, eclipsing the record of €5.95B seen in 2023 (a downturn year) by almost 30%. Similar to last quarter, when considering sales and bookings, these are mixed results for memory investors. Sales this year are at record levels, yet this calendar year straddles the early to the middle part of what would be a normal memory cycle. It could be that lithography capital intensity has increased so much that the record revenue is not adding enough bits to bring overcapacity. Bookings are a good story as they continue to come down, albeit gradually. They are at levels below current quarter revenues for the last half year, indicating memory customers are being cautious about investing at this time. The recovery in non-AI market segments is “more gradual than previously expected.” For Micron investors, “In Memory, we see limited capacity additions, with the focus still on technology transitions supporting the HBM and DDR5 AI-related demand.” China was 47% of sales in this quarter. That is expected to be around 20% of total sales in 2025, as revenue catches up with backlog. Their China business is rich in immersion, a product that has higher gross margin than the corporate average. Thus, as their China business declines, it puts downward pressure on overall gross margin. Rest is from the analyst call. The surge in China sales in the last four quarters has been ASML catching up with backlog. Now that they are almost caught up, this is why calendar 2025 is expected to be 20% revenue from China. It is not clear how much of the bookings and revenue in the last year to two years has been from Chinese indigenous memory customers. With China sales coming down to 20% of total, we will get a cleaner look at that. Overall, this quarter was mixed for Micron shareholders. Declining bookings happen during the downturn in a memory cycle. Record sales to memory customers is consistent more with spending near the peak of the cycle. One way to square this contradiction is that lithography capital intensity has risen faster than the historical rate in the last three to four years. Another explanation, consistent with ASMLs data on regional sales, is that Chinese memory makers have purchased an outsized amount of lithography equipment in the last year or two. ASML’s results this quarter sent mixed signals to memory investors on lithography capacity additions today. The bookings results signal that investments coming in the next year in lithography equipment for memory are lower than what is being installed and qualified today, suggesting that any oversupply situation may take longer to emerge than is typical for the memory cycle.
- Smooth Hughes (cyclical long MU)