Micron: Price Increases Can't Meet High Expectations

Micron (MU.O) released its financial report for the third quarter of the 2024 fiscal year (ending in May 2024) after the US stock market on the morning of June 27, 2024, Beijing time, with the following key points:

1. Overall Performance: Revenue & Gross Margin, Rebound as Expected. Micron's total revenue for the third quarter of the 2024 fiscal year was $6.811 billion, an 81.5% year-on-year increase, slightly better than market expectations ($6.661 billion). Revenue accelerated this quarter, mainly driven by the growth of the company's core DRAM and NAND businesses. Micron achieved a net profit of $332 million in the third quarter of the 2024 fiscal year, continuing to maintain profitability. Excluding the impact of non-operating items, the company's core operating profit this quarter continued to rebound in gross margin.

2. Business Segments: DRAM and NAND, 20% Price Increase in Products. DRAM and NAND accounted for 99% of the company's revenue, and both businesses showed significant improvement this quarter. Specifically, the growth of DRAM and NAND this quarter was mainly due to the overall improvement in the storage industry, with prices of both product categories increasing by double digits.

3. Outlook for the Next Quarter: $ Micron Tech(MU.US) expects revenue for the fourth quarter of the 2024 fiscal year to be $7.4-7.8 billion (an 89.5% year-on-year increase), basically in line with market expectations ($7.57 billion); the gross margin for the quarter (GAAP) is expected to be 32.5% to 34.5%, with a continued increase in gross margin compared to the previous quarter, in line with market expectations (33.5%).

Dolphin's Overall View:

Micron's financial report for this quarter overall meets market expectations. The continued increase in revenue and gross margin is mainly due to the improvement in the storage industry, which drove the price increase of DRAM and NAND products. There was not much change in the company's product shipment volume this quarter, and the price increase was the main factor driving the performance improvement. Excluding non-operating impacts, the company's operating profit this quarter has remained above profitability. With the rise in product prices, the company's performance is expected to continue to improve.

Considering the guidance provided by the company for the next quarter, revenue for the fourth quarter of the 2024 fiscal year is expected to be $7.4-7.8 billion (an 89.5% year-on-year increase), in line with market expectations ($7.57 billion); the gross margin for the quarter (GAAP) is expected to be 32.5% to 34.5%, in line with market expectations (33.5%).

Dolphin believes that with the rise in storage prices, the company's business in the next quarter is expected to improve as scheduled.

Although Micron's performance is expected to continue to improve, the company has not provided stronger expectations, which has to some extent affected market confidence. Stimulated by the demand for HBM and the drive of AI PC and AI phone, the market originally had increasing expectations for the company. However, the company does not see a significant increase in expected shipments of DRAM and NAND for the next quarter, only clearly indicating good demand for HBM.

Overall, storage itself is cyclical. Benefiting from the impact of rising storage product prices, Micron's performance will continue to improve. At the same time, driven by the demand for HBM in AI servers, Micron's stock price has reached a new high. Subsequently, Micron's stock price continued to rise, partly due to the expectations of memory upgrades brought by AI PC and AI phone to the market, but this has not yet had a significant impact on the demand side.

From this quarter's financial report and company expectations, Micron will still focus on "storage cycle + HBM". Although HBM can bring temporary growth highlights, the storage industry is still difficult to break away from its cyclical nature. From the perspective of valuation, the current stock price already includes expectations from various aspects of the market, but it seems that the company's current performance and expectations may be difficult to support.

Here is Dolphin's specific analysis of Micron's financial report:

I. Overall Performance: Revenue & Gross Margin, Rebounding as Expected

1.1 Revenue

Micron's total revenue for the third quarter of the 2024 fiscal year was $6.811 billion, an 81.5% year-on-year increase, slightly better than market expectations ($6.661 billion). Revenue continued to rebound this quarter, mainly driven by the accelerated growth of the company's core DRAM and NAND businesses, with the increase in storage prices being the main driving force.

1.2 Gross Margin

Micron achieved a gross profit of $1.832 billion in the third quarter of the 2024 fiscal year, with the quarterly gross margin continuing to improve.

The company's gross margin for this quarter was 26.9%, with the rebound in gross margin mainly driven by rising product prices and product mix. Considering the company's inventory of $8.512 billion, although the absolute value has increased, the inventory turnover has accelerated, which has also driven the increase in gross margin.

1.3 Operating Expenses

Micron's operating expenses for the third quarter of the 2024 fiscal year were $1.141 billion, a 16.8% year-on-year increase. The operating expense ratio for this quarter remained stable at 16.8%In terms of specific expenses:

1) Sales and Administrative Expenses: In this quarter, it amounted to USD 2.91 billion, a year-on-year increase of 32.9%. The sales and administrative expense ratio was 4.3%, a year-on-year decrease of 1.5 percentage points. The increase in the proportion is mainly due to the improvement in revenue. There is a certain relationship between sales expenses and revenue performance, while administrative expenses are relatively fixed.

2) Research and Development Expenses: In this quarter, it was USD 8.50 billion, a year-on-year increase of 12.1%. Research and development expenses are the largest source of operating expenses for the company. The research and development expense ratio in this quarter decreased to 12.5%, as the increase in revenue lowered the proportion of research and development expenses. As a technology company, the company places more emphasis on research and development capabilities, and the company's overall research and development expenses remain relatively stable.

1.4 Net Profit Situation

Micron Technology achieved a net profit of USD 332 million in the third quarter of the 2024 fiscal year, slightly lower than market expectations (USD 397 million), due to the unexpected increase in operating expenses. In this quarter, the company's net profit margin was 4.9%, maintaining a profitable state.

Although the company's net profit declined slightly in this quarter, if we exclude the impact of non-operating projects, the company's operating profit and profit margin both rebounded in this quarter under the influence of the increase in gross profit margin.

II. Business Segments: DRAM and NAND, Product Prices Increase by 20%

From the previous in-depth analysis of Micron by Dolphin Jun " Micron: Has the Storage Chip Giant Survived the Winter?", the company's largest source of revenue is storage chips. From the latest financial report, DRAM and NAND are still the company's most important sources of revenue, accounting for a combined 99%. Therefore, the changes in Micron's business are mainly dependent 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 rebounded to USD 4.692 billion, a year-on-year increase of 75.6%. This is mainly driven by the price increase of the company's DRAM products due to the industry recovery.In this quarter, Micron's DRAM business grew by 13% compared to the previous quarter, with a slight decrease in shipments and a price increase of about 20%.

Dolphin believes that the DRAM industry has shown signs of recovery this quarter, with overall product pricing seeing a certain increase. Taking DDR4 8G (1G*8) 3200Mbps as an example, the product price has risen from a low of $1.4 in September 2023 to around $1.74 now.

2.2 NAND

NAND is the company's second largest source of revenue, accounting for 30%. The company's NAND business revenue for this quarter was $20.65 billion, a year-on-year increase of 103.8%. The growth of NAND this quarter exceeded that of DRAM, mainly due to the simultaneous increase in volume and price.

Micron's NAND business grew by 32% compared to the previous quarter this quarter. The shipment volume of NAND this quarter saw a high single-digit increase, while the average price of the company's NAND products also rose by around 20%.