Having looked into Micron it may be a company to invest in or have a watchlist. They are a memory maker who owns the fab and silicon producing process, along with the final product development and distribution.
They’ve put up some strong numbers recently and have a compelling narrative. Ultimately I decided to pass on starting a position, but I’ve put them on my watchlist. I’d be interested to hear what other board members think of Micron.
They product mix increasingly includes higher margin memory products which are slated to go into Nvidia’s AI chips. Some of these products are already sold out through 2025, and the company like many other semis is looking to ramp production adding to a facility in Idaho and creating a new fab in New York state.
There are new products like AI PCs and AI phones which Micron is going to be a top supplier for. I’m still somewhat unclear what an AI PC or AI phone even means yet, and I think maybe even Micron is too, but the hardware providers are building these, and they require significant more memory. This is looking to be a huge catalyst for Micron going forward.
The reason I’m passing on investing is that their quarterly run-rate for the last quarter is only on par with earnings from years like 2018 where they had 30.4B in revenue, and 2022 where they had 30.8B in revenue. They have explained that 2023 was a bad year for the semis and especially storage and memory. I’d really like to see this company get past their previously yearly revenue range.
They also have a 6.1B deal with the government for the CHIPS act which reimburses for the fabs build out in Idaho and New York. It sounds like the government won’t reimburse later until the factories are built. I’m not sure the impact if this regulation ends and if it only makes sense for them to build the fab because of the regulation.
DRAM which is short term memory (69% of Micron’s sales) storage has three main players,
Micron 22.8%
Samsung 38.9%
SK Hynix 34.3% (Also South Korean company)
If only looking at the last year, the trend looks impressive,
Revenue
4.01B → 4.73B → 5.82B → 6.81B
-39% → 16% → 57% → 81% (yoy growth)
EBITDA
476M → 787M → 2115M → 2636M
Gross margin
-11% → -1% → 19% → 27%
Their last earnings guides and actuals,
Revenue 6.6B → actual 6.8B
Gross margin 25.5% → actual 26.9%
Diluted EPS 0.17 → actual 0.30
Next quarter guide is,
Revenue 7.6B
Gross margin 33.5%
Diluted EPS 0.60
Some standout items I like from their last earnings and presentations,
- Gaining share in high margin products like HBM (High bandwidth memory)
- Operating cash flow of 2.48B, last Q was 1.22B, and previous year was 24M
- Robust AI demand
- 2025 demand for AI PC and AI smartphones
- Gaining share in data center SSDs
- During quarter tripled bit shipments of 232-layer based 30TB SSDs (they measure volume in “bits”)
- AI PCs have 40-80% more DRAM than typical CPUs
- Automotive is robust and growing well
- Storage revenue (SBU) is +50% qoq, and +116% yoy and this quarter was 1.35B
- Revenue breakdown is 69% DRAM, 30% NAND (NAND is faster growing)
- AI products are higher margin: HBM, high capacity DIMMs, data center SSDs
- Seeing increased interest from many customers across market segments
- HMB3E (latest product), has 30% lower power consumption than competitors (Keep in mind low power consumption is a top priority for Nvidia)
- HBM shipment began to ramp in this Q, with margins accretive to DRAM and overall company margins, expect 700M in Q4 revenue and multiple billions next year
- HBM sold old through 2024 and 2025 which prices contracted from majority of 2025 supply
- Hyperscale demand is improving driven by AI training and inference
- PC replacement cycle should gain momentum through calendar 2025
- AI PCs align well with portfolio
- AI phone releases will use 50-100% more memory
- Mobile DRAM and NAND solutions are now widely adopted in flagship smartphones
- Some portion of DRAM and NAND sales growth are from a 20% price increase
- Gross margin would have grown by eight percentage points more if not for written down inventories
- OpEx at low end of guide, discipline and operational efficiencies
- Expect continued gross margin expansion, pricing trends
- CHIPS act offsets CapEx costs from fab investments
- Lots of worldwide facilities, Idaho, Virginia, Utah, Singapore, Japan, Taiwan
- HBM3E has qualified to be used in Nvidia H200
- Revenue is 50% domestic, 50% international. Breakdown is USA 50%, Taiwan 17.4%, China 16.2%, Japan 6.4%, other 9.8% (Shows how all the innovation is happening in the USA and Asia)
Some points about the business that I see as drawbacks,
- PC and mobile product lines are growing low single digits
- 6.1B deal on CHIPS act which could end for their fab build out
- Silicon wafer supply could be a blocker, HBM3E consumes 3x the wafer supply of previous products, and HBM4 will consume even more
Overall I’d prefer to have my money invested in Nvidia and Supermicro, but Micron is certainly interesting as a growth stock. I’d like to observe at least another quarter or two to see what type of numbers they can put up. Ultimately I’d rather be in the top tier, fastest growing AI players as opposed to ones which might be the best second tier like Micron and Celestica (CLS).
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