Micron Tech's first fiscal quarter revenue met expectations, but the outlook for the next quarter is significantly poor, leading to a drop of 17% in after-hours trading. | Earnings Report Insights
Some analysts pointed out that Micron is the first among its peers to announce its financial report this quarter, playing an important role in the outlook for technology stocks. Despite being dragged down by the decline in traditional DRAM memory chip prices, the high bandwidth memory used in AI chips continues to boost profit margins, with data center revenue increasing by over 400% year-on-year to a new high, and for the first time accounting for more than 50% of total revenue, which also led to a record high in total revenue
On December 18th, Wednesday, after the US stock market closed, Micron Technology, a memory chip manufacturer in the "AI hot camp," released its financial results for the first fiscal quarter of 2025, ending November 28.
Although the company turned a profit year-on-year, with revenue soaring 84% to a record high in line with expectations, data center revenue exceeded 50% of total revenue for the first time, and data center revenue increased over 400% year-on-year and 40% quarter-on-quarter to a new high, the revenue guidance for the next quarter was noticeably weak, leading to a drop of over 17% in after-hours trading.
Here are the key points from Micron Technology's financial report for the first fiscal quarter of 2025:
1) Key Financial Data
Revenue: Increased by 84.1% year-on-year to $8.71 billion, up 12.4% quarter-on-quarter, fully in line with market expectations.
Net Profit: $1.87 billion under GAAP, $2.04 billion under non-GAAP, the latter up 52% quarter-on-quarter, compared to a loss of $1.05 billion in the same period last year.
Earnings Per Share: Adjusted non-GAAP diluted earnings per share were $1.79, exceeding analysts' expectations of $1.77, compared to a loss of $0.95 per share in the same period last year.
Cash Situation: Operating cash flow for the quarter was $3.24 billion, weaker than the previous quarter's $3.41 billion, and $1.4 billion in the same period last year. Net capital expenditures for the quarter were $3.13 billion, resulting in adjusted free cash flow of $112 million.
Shareholder Return: The board of directors declared a quarterly dividend of $0.115 per share, to be paid in cash on January 15, 2025, to shareholders registered as of the close on December 30, 2024.
2) Segment Data
Compute and Networking Business Unit: Revenue increased by 46% quarter-on-quarter to $4.4 billion, setting a new quarterly record, accounting for more than half of total revenue, driven by demand for cloud server DRAM and HBM revenue, which has doubled quarter-on-quarter for two consecutive quarters.
Mobile Business Unit: Revenue decreased by 19% quarter-on-quarter to $1.5 billion, as mobile customers focused on destocking, and the company adjusted supply to meet data center demand.
Embedded Business Unit: Revenue decreased by 10% quarter-on-quarter to $1.1 billion, as automotive, industrial, and consumer customers continued to reduce inventory.
Storage Business Unit: Revenue increased by 3% quarter-on-quarter to $1.7 billion, setting a new quarterly high, driven by record high data center SSD revenue
3 ) Performance Guidance
Revenue: Revenue for the second fiscal quarter of fiscal year 2025, ending in February next year, is expected to be in the range of $7.7 billion to $8.1 billion, significantly weaker than analysts' expectations of $8.99 billion.
Profit: Adjusted earnings per share for the next fiscal quarter are expected to be between $1.33 and $1.53, significantly weaker than analysts' expectations of $1.91.
Gross Margin: Adjusted gross margin for the next fiscal quarter is expected to be between 37.5% and 39.5%.
Capital Expenditure: Expected to be $3 billion.
AI Chip Usage of High Bandwidth Memory HBM Continues to Boost Profits, Data Center Revenue Surges Over 400% to New Highs
Micron Technology President and CEO Sanjay Mehrotra emphasized in the earnings report statement that the company achieved record revenue in the first fiscal quarter, with data center revenue exceeding 50% of total revenue for the first time, and data center revenue increased over 400% year-on-year, up 40% quarter-on-quarter, reaching a new high:
“Although the consumer-oriented market is performing weakly in the short term, we expect growth to resume in the second half of fiscal year 2025.
We continue to gain market share in the most profitable and strategically important areas, and we are in a very favorable position to leverage AI-driven growth to create significant value.
We expect the company's revenue to continue to reach new highs, with significant improvements in margins, achieving positive free cash flow in fiscal year 2025.”
Analysis of the earnings report shows that Micron Technology's revenue growth in the first fiscal quarter was significantly higher than the 15.7% increase in the same period last year, but weaker than the 93.3% growth in the previous quarter. The revenue for the first fiscal quarter fully met the company's expectations, and earnings per share exceeded the official guidance of $1.74.
The adjusted non-GAAP gross margin for the first fiscal quarter was 39.5%, fully in line with the company's guidance of a 3 percentage point increase in margins, compared to only 0.8% in the same period last year, partly due to the increase in sales of high bandwidth memory (HBM) used in AI chips at high prices and high profits.
Micron Technology had previously projected that revenue for the entire fiscal year 2025 would increase by 52% year-on-year to $38 billion, with earnings per share soaring from $1.30 in the previous fiscal year to $8.78 Wall Street has high expectations for this financial report, as it is optimistic about the strong demand for Micron Technology's HBM products from AI leaders like NVIDIA. Analysts generally expect Micron Technology to maintain good momentum in earnings and revenue growth.
Elazar Advisors analyst Chaim Siegel pointed out that Micron Technology is the first mainstream company in its peer group to release its financial report this quarter, which may predict the trend of semiconductor stocks, playing an important role in the recent outlook for the tech market.
Micron Technology fell more than 4% on Thursday, with a cumulative increase of nearly 22% this year, lagging behind the benchmark Nasdaq, which has risen 29% during the same period. Before the financial report was released, analysts had an average target price of $145.92 for Micron Technology, indicating at least a 30% upside potential.
Micron is dragged down by falling DRAM memory prices, with the company optimistically predicting that the HBM market will exceed $100 billion by 2030.
Further analysis indicates that Micron Technology's financial report was primarily dragged down by falling prices of DRAM memory chips used in mobile phones and personal computers. Due to weak consumer demand and oversupply, this memory market remains sluggish, contributing to more than half of Micron's revenue (accounting for 75% of first-quarter revenue). The CEO of Micron also acknowledged in his statement that "the consumer-oriented market is performing weakly in the short term."
Citigroup analyst Christopher Danely reiterated his buy rating on the company and a higher target price of $150 on Monday, but also expected that "due to the weak performance of the traditional DRAM market, Micron Technology's performance and guidance will be slightly below market expectations."
However, he remains optimistic about the recovery of the DRAM memory market, citing supply and demand dynamics in the 2025 calendar year:
"Although there is an oversupply of DRAM inventory in the personal computer and mobile terminal markets, which together account for 50% of Micron Technology's sales in fiscal year 2024, this situation should disappear by spring 2025 and will be offset by strong growth in the data center terminal market, which accounts for 35% of Micron's sales in fiscal year 2024."
Currently, investors are betting on Micron Technology's strategic advantage in the high-bandwidth memory chip (HBM) market, which is commonly used in AI chips to enhance performance and reduce power consumption in artificial intelligence systems.
For example, Micron Technology's HBM products are being integrated into NVIDIA's H200 AI chips and the newly developed most powerful Blackwell system, making Micron one of the few companies directly involved in the rapidly growing AI market.
The CEO of Micron has optimistically predicted that the global market size for HBM chips will grow to about $25 billion by 2025, significantly higher than $4 billion in 2023, and will also boost the memory chip market size to $20.4 billion by 2025.
The company's latest forecast states that by 2028, the total addressable market (TAM) for HBM will grow fourfold from $16 billion in 2024, exceeding $100 billion by 2030 The U.S. stock research website The Motley Fool stated that Micron Technology is currently growing at an astonishing rate, and this trend seems likely to continue. The company's AI-driven growth and attractive valuation have captivated investors, despite the fact that "this memory expert" has seen its stock price drop 34% from the 52-week high it reached in mid-June:
"This year, the memory industry has entered a turning point. Catalysts such as artificial intelligence have driven a surge in memory consumption across multiple fields, including data centers, smartphones, and personal computers (PCs), particularly with the rapid increase in the use of high-bandwidth memory (HBM) in AI chips.
Meanwhile, new catalysts such as the upcoming PC upgrade cycle and growth in the smartphone market may provide additional growth momentum for Micron."