Micron Technology: Seemingly Warm, Real Downturn

Micron Technology (MU.O) released its fiscal year 2023 fourth-quarter earnings report (ending in August 2023) after the US stock market closed on September 28, 2023. The key points are as follows:

Overall performance: The true picture is revealed when inventory is not deducted. Micron Technology's total revenue for the fourth quarter of fiscal year 2023 was $40.10 billion, yoy -39.6%, which is basically in line with market expectations ($39.30 billion). The significant decline in revenue was mainly due to the downturn in the storage industry. The company's net profit for the fourth quarter of fiscal year 2023 was -$1.43 billion, yoy -195.8%. The loss continued to narrow by $470 million, with inventory deductions reducing by approximately $400 million this quarter.

Business segment performance: Continuing to "make up for price with volume." DRAM and NAND accounted for 98% of the company's revenue, and both businesses experienced double-digit declines this quarter. The QoQ improvement in the company's revenue mainly came from "making up for price with volume," but the prices of DRAM and NAND continued to decline this quarter.

Outlook for the next quarter: The projected revenue for the first quarter of fiscal year 2024 is $4.2-4.6 billion (yoy+7.7%), which is in line with market expectations of $4.213 billion. The gross margin (GAAP) for the quarter is expected to be -8% to -4%, with a continued improvement in gross margin QoQ.

Overall, Micron's earnings report this time is basically in line with expectations. Both revenue and gross margin show signs of recovery and improvement as expected, and the company's losses continue to narrow. Although the average selling prices of the company's DRAM and NAND products have declined this quarter, there has been a noticeable increase in shipments.

However, in reality, Dolphin Research believes that the company's financial data for this quarter did not show a significant improvement QoQ. This is because the company made a $400 million inventory deduction in the previous quarter, which was not done this quarter. After excluding this impact, the gross margin and quarterly profit of the company did not show a significant improvement compared to the previous quarter.

Looking at the guidance provided by the company for the next quarter, it is expected to achieve revenue of $4.2-4.6 billion for the first quarter of fiscal year 2024, which is basically in line with market expectations ($4.213 billion). The gross margin for the next quarter is also expected to be -8% to -4%, which is in line with market expectations (-7.89%).Due to the company not making any inventory write-downs this quarter, the gross profit margin is expected to improve in the next quarter, indicating a slight improvement in the company's business. However, the extent of the improvement is not significant according to expectations.

Micron's stock price has already risen by over 30% from its bottom, partially reflecting the expectation of a recovery. The positive cycle has allowed Micron's stock price to outperform the market recently. The narrowing of the performance loss is achieved through a strategy of "increasing volume to compensate for price". To continue the upward trend of Micron's stock price, it will still need to deliver results that exceed expectations.

Here is Dolphin Research's specific analysis of Micron's earnings report:

1. Overall Performance: Revealing the True Picture with No Inventory Write-downs

1.1 Revenue

Micron's total revenue for the fourth quarter of the 2023 fiscal year was $4.01 billion, a year-on-year decrease of 39.6%, which is in line with market expectations ($3.93 billion). The year-on-year decline in revenue this quarter is mainly due to the decrease in the company's core businesses, DRAM and NAND. The downturn in the storage industry since last year has directly affected the prices and shipment volumes of the company's products due to weak market demand.

However, on a quarter-on-quarter basis, the company's revenue continued to recover, achieving a growth of 6.9% compared to the previous quarter. The consecutive recovery for two quarters confirms the direction of the company's bottoming out and recovery.

1.2 Gross Profit

Micron achieved a gross loss of $435 million in the fourth quarter of the 2023 fiscal year, with the gross loss continuing to narrow.

The gross profit margin for this quarter was -10.8%, which remains at a low level, mainly due to the impact of price and capacity utilization rate decline. However, on a quarter-on-quarter basis, the gross profit margin increased by 7 percentage points, mainly because the company did not make any inventory write-downs this quarter.

Looking at Micron's gross profit margin, the company made nearly $400 million in inventory write-downs last quarter, which had an impact of approximately 10% on the gross profit margin. After excluding this impact, the actual gross profit margin should be around -7%.

Therefore, although the gross profit margin appears to have improved this quarter, the actual gross profit margin has declined, and the prices of the company's products have also declined to some extent during the quarter. However, considering that no inventory write-downs were made this quarter, the company has confidence in its current inventory situation.

Based on the company's guidance for the next quarter's gross profit margin of -8% to -4%, it is expected that product prices will rebound in the next quarter.

1.3 Operating Expenses

Micron's operating expenses for the fourth quarter of the 2023 fiscal year were $938 million, a year-on-year decrease of 16.2%. The operating expense ratio continued to decline, reaching 23.4%.Among the itemized expenses:

1) Sales and administrative expenses: In this quarter, it amounted to $219 million, a YoY decrease of 21.8%. The sales and administrative expense ratio was 5.5%, a YoY increase of 1.3 percentage points. The increase in the ratio was mainly due to changes in revenue. There is a certain relationship between sales expenses and revenue performance, while administrative expenses are relatively fixed. In terms of absolute value, the company continues to control expenses.

2) Research and development expenses: In this quarter, it amounted to $719 million, a YoY decrease of 14.3%. Research and development expenses are the largest source of operating expenses for the company, with a research and development expense ratio of 17.9% in this quarter. As a technology company, the company attaches great importance to research and development capabilities. In terms of absolute value, the company's research and development expenses continue to decline MoM, indicating that the company continues to control its investment in research and development.

1.4 Net Profit Situation

Micron Technology achieved a net loss of $1.43 billion in the fourth quarter of the 2023 fiscal year, a YoY decrease of 195.8%, and the loss continued to narrow. In this quarter, the company's net profit margin was -35.7%.

The company's performance rebounded by $470 million QoQ, with the main contribution coming from a $400 million reduction in inventory. After excluding this impact, the improvement in the company's performance came from cost control.

II. Business Segments: DRAM and NAND Continue to "Make Up for Quantity with Price"

From Dolphin Research's in-depth analysis of Micron Technology, "Micron: Has the Winter for Memory Chip Giants Passed?" the company's largest source of revenue is memory chips. From the latest financial report, DRAM and NAND are still the most important sources of revenue for the company, accounting for a combined 98%. Therefore, the changes in Micron's business mainly depend on the situation of the DRAM and NAND businesses.

2.1 DRAM

DRAM is the company's largest source of revenue, accounting for nearly 70%. In this quarter, the company's DRAM business revenue was only $2.755 billion, a YoY decrease of 42.7%. This is mainly due to the decline in product prices under weak demand.

In this quarter, Micron Technology's DRAM business grew by 3.1% MoM, with a shipment volume increase of about 15%, while prices continued to decline by a high single-digit percentage.Dolphin Research believes that the DRAM industry has not yet emerged from its downturn in the second quarter, with product prices continuing to decline. Taking DDR4 8G (1G*8) eTT as an example, the product price dropped from $1.2 in early June 2023 to $1.02 in early September. However, recent prices indicate that DRAM product prices have started to rebound in September.

2.2 NAND

NAND is the company's second largest source of revenue, accounting for nearly 30%. However, the company's NAND business revenue for this quarter was $1.205 billion, a YoY decrease of 28.6%. Although NAND's impact on the company's performance is not as significant as DRAM, the double-digit decline in this quarter also affected the company's revenue situation.

Micron's NAND business has clearly rebounded this quarter, with a MoM growth of 19%. Among them, NAND shipments have increased by approximately 40%, but the average price of the company's NAND products has declined by about 15%.

Looking at the market prices of NAND, taking NAND Flash 32Gb 4G*8 MLC as an example, the price was $2.067 in early June 2023, and it dropped to $2.063 in early September.

Dolphin Research has reviewed Micron and semiconductor-related articles:

Earnings Season

June 29, 2023, Earnings Review: "Micron Technology: AI Wave Surges, Turning Point Approaching?" Link

June 29, 2023, Conference Call: "Inventory Clearance Nearing Completion, AI Ignites New Fire (Micron 3QFY23 Conference Call)" Link

March 29, 2023, Conference Call: "Emerging from the Worst Period, Semiconductor Industry May See the Dawn (Micron FY23Q2 Conference Call)" Link

March 29, 2023, Earnings Review: "Micron's 'Great Bleeding' Might Not Be a Bad Thing" LinkIn-depth

April 13, 2023, "Micron: GPT cools down, no hindrance to storage bottoming out" (source)

March 15, 2023, "Micron: Has the winter for storage chip giants passed?" (source)

Semiconductor industry-related research

March 7, 2023, "NVIDIA: Will there be a big turnaround after the magical performance?" (source)

December 29, 2022, Semiconductor industry review, "Semiconductor avalanche? True resilience comes after the most severe decline" (source)

June 24, 2022, Semiconductor industry review, "Order cancellations, is the semiconductor industry really going to 'change'?" (source)

Risk disclosure and statement for this article: Dolphin Research disclaimer and general disclosure