Micron Technology Lowers Its Financial Forecast, Stock Drops 16%

 

Memory chip manufacturing giant Micron Technology released its financial report for the first quarter of fiscal year 2025 on December 18, 2024, local time.

 

The report showed that despite the continued weakness in the global consumer market, the demand from data centers driven by AI was strong, and the company achieved a record quarterly revenue performance.

 

 

However, it issued a guidance for the second quarter that was far below Wall Street's expectations.

 

 

After the earnings report was released, Micron Technology's stock dropped by 16.18% in a single day.

 

Let's take a look at it together.

 

It can be seen that the revenue for this quarter actually met expectations, and both operating profit and net profit were better than those of the same period last year and the previous quarter.

 

I took a look and found that Micron Technology's financial report was mainly dragged down by the price decline of DRAM memory chips used in mobile phones and personal computers.

 

Due to weak consumer demand and oversupply, this memory market remains sluggish, and this part of the business contributes the majority of Micron Technology's revenue.

 

Sanjay Mehrotra, President and CEO of Micron Technology, stated in the financial report that the company achieved a record high revenue in the first fiscal quarter, with the revenue from data centers exceeding 50% of the total revenue for the first time.

 

Moreover, the revenue from data centers increased by more than 400% year-on-year and 40% quarter-on-quarter, reaching a new high. However, Micron Technology also said that the surge in data center revenue was not enough to offset the weakness in orders from consumer-oriented equipment manufacturers. In this area, customers have been dealing with backlogged inventories.

 

Sanjay Mehrotra said, "The PC replacement cycle is gradually unfolding. We expect PC sales growth to be flat in 2024, slightly lower than previous expectations.” Over time, we remain optimistic about the popularity of AI personal computers."

 

Therefore, investors believe that Micron Technology has the risk of weakness and have begun to sell a large number of Micron Technology's stocks.

 

In fact, for a long time, the stock market trend of Micron Technology's investors has been like a roller coaster.

 

Why has there been such a drastic change? Although the demand for artificial intelligence systems is booming, the majority of Micron Technology's business still comes from personal computers and smartphones.

 

These are actually mature markets. Although sales have slightly rebounded this year, the growth rate is at most in the single digits.

 

The increase in inventory and the weakness in personal computer and smartphone sales are expected to put pressure on the price increases that producers such as Micron Technology have recently enjoyed. And as more and more producers enter this market, some people are also worried that high-bandwidth memory (HBM) for artificial intelligence systems may experience oversupply.

 

However, Wall Street currently believes that Micron Technology's difficulties are only temporary. An analyst once said that he firmly believes that the slowdown in the increase in DRAM prices is temporary, because considering the increase in memory capacity for AI applications, personal computer or smartphone customers may return to the negotiating table next year.

 

 

Yes, although Micron Technology's stock price plunged after the release of its financial report this time, I think this is a good opportunity to bottom-fish.

 

Let's continue to look at what Chief Executive Officer Sanjay Mehrotra said: Sanjay Mehrotra said, "Although the consumer-oriented market is weak in the short term, it is expected to resume growth in the second half of the company's fiscal year 2025. We continue to gain market share in the market segments with the highest profit margins and strategic importance, and we are in a very favorable position to leverage the growth driven by artificial intelligence to create significant value. We expect the company's revenue to continue to reach new highs, profit margins to improve significantly, and achieve positive free cash flow in fiscal year 2025."

 

Yes, he expects that the consumer sector will recover in the second half of next year, and both his personal computer and smartphone businesses will benefit from this.

 

Moreover, Micron Technology said that HBM can not only increase the gross profit margin of the DRAM department but also improve the company's overall gross profit margin.

We should infer that as Micron Technology's revenue structure shifts towards high-margin HBM and away from NAND, the company should enjoy a tailwind in gross profit margin in fiscal year 2025.

 

Most importantly, Micron Technology's current stock price and valuation are both low, and its risk-return profile is very good.

 

With the increasing demand for artificial intelligence and the changing cycles of artificial intelligence, the upside potential for Micron Technology is actually quite large.

 

Therefore, I think this decline is a good opportunity to invest in Micron Technology.

 

$MU