Micron Technology, the largest US maker of memory chips, recently issued a sales outlook for the fiscal third quarter that exceeded market expectations. The announcement suggests a possible comeback for the beleaguered memory chip market and bodes well for Micron’s position and potential in the semiconductor industry.
Micron’s Position in the Semiconductor Industry
Micron Technology is currently the fourth-largest semiconductor company in the world and the third-largest supplier of DRAM. DRAM is an essential component for all computers, from PCs to datacenter computing infrastructure.
The semiconductor industry is forecasted to reach a value of $1tn by 2030. Despite the current downturn in the industry, Micron is expected to benefit from cyclical patterns and growth trends in the AI and cloud computing industries.
Micron’s Recent Performance and Future Prospects
In recent months, Micron’s stock price has decreased over 39% from its January 2022 high. The company’s compute and networking segment revenue declined by 60% YoY, but management has forecasted increased bit demand in the second half of 2023.
However, Micron’s DDR5 RAM is designed for data centers and has demonstrated up to an 85% increase in system performance, making it suitable for high-performance computing, big data, and AI workloads. Micron’s data center revenue is expected to rebound soon, partially driven by growth in the AI industry. Moreover, Micron’s mobile business has started to recover with expected growth in DRAM and NAND shipments in the second half of fiscal year 2023.
On the other hand, Micron’s embedded business revenue was down, mainly driven by weakness in consumer markets, but it was partially offset by revenue growth in the automotive segment. Furthermore, Micron’s storage revenue was down due to weakness in the NAND market, but it was partially offset by an increase in shipments.
Micron Technology’s Efforts to Counter Industry Challenges
Micron Technology has been cutting costs and reducing production to help improve supply dynamics. Micron reported $12.1bn in cash and investments and increased its liquidity with $1.9bn extra in long-term debt.
Micron was the first in the industry to ship QLC NAND, offering greater storage density, lower cost per bit, and faster read speeds than prior architectures. However, Micron’s gross margin was negative for Q2 FY2023, mainly due to a $1.4bn inventory writedown.
Micron Technology’s Recovery Prospects
Despite recent challenges, Micron Technology’s positive outlook indicates a possible recovery for the memory chip industry. The company expects that demand will grow faster than supply in 2023 and projects a transition to sequential revenue growth, saying that inventory has peaked, and end markets such as smartphones and personal computers are contracting less severely than feared.
German chipmaker Infineon Technologies AG also raised its own forecasts for the quarter and the full year, citing stronger-than-expected sales of automotive and industrial products, suggesting a positive trend in the industry.
Micron’s CEO argued that the company would deliver more stable earnings than in past downturns due to a small number of competitors more focused on profits and expanded uses for memory chips.
Analysts’ Views on Micron Technology’s Recovery
Analysts have acknowledged that Micron’s downturn was deeper than expected but a recovery is approaching. Barclays analyst Tom O’Malley noted that the company is “well-positioned,” especially as the data center improves. Bank of America analyst Vivek Arya said there is “no quick fix,” but it looks like the weakness in the memory market is starting to subside.
J.P. Morgan analyst Harlan Sur raised the per-share price target to $75 from $65 and noted that Micron has made “good progress” on excess inventory but still has more work to do. Citi analyst Christopher Danely reiterated the firm’s buy rating and $75 per-share price target after the results, noting that the DRAM industry and Micron’s margins look to be bottoming.
Seeking Alpha contributor SL Investments said Micron’s results send a “strong buy signal” as the memory cycle looks to be bottoming, and the company should benefit from the U.S. government’s harsh stance against China.
In conclusion, despite recent challenges, Micron Technology’s positive outlook indicates that a recovery may be approaching in the memory chip industry. The company’s position as a major player in both DRAM and NAND, combined with its focus on AI and cloud computing industries, makes it well-positioned for future growth.
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