Micron picked a bad day to provide a disappointing outlook
4min read Equities were hammered today as a hawkish Fed washed out a lot of liquidity in the market. This was the back drop in the equity market when MU posted its results. The company was able to beat on the top and bottom line but its outlook fell woefully short of expectations. It was the wrong day to warn about a slow down in an industry. The mix led to a steep 15% decline in shares of MU.
Micron Technology (MU) delivered mixed results for its fiscal Q1 FY2025, reporting adjusted EPS of $1.79, which beat consensus estimates of $1.76, while revenue surged 84% year-over-year to $8.71 billion, in line with expectations. Gross margin came in at 39.5%, also meeting estimates. Operating income reached $2.4 billion, and operating margins improved to 27.5%, marking a substantial turnaround from last year’s losses.
Despite these strong results, Micron issued disappointing guidance for Q2 FY2025, projecting revenue between $7.7 billion and $8.1 billion, well below the consensus of $8.99 billion. Adjusted EPS for Q2 is forecasted to range between $1.33 and $1.53, compared to the $1.92 expected by analysts. Gross margin guidance of 37.5%-39.5% also fell short of Bloomberg estimates of 41.3%, driving Micron shares down sharply after hours.
The breakdown of revenue by business units highlighted contrasting trends across segments. The Compute and Networking Business Unit (CNBU), primarily driven by data center demand, posted revenue of $4.4 billion, a sequential growth of 46%, accounting for over half of total revenue. Storage Business Unit (SBU) revenue rose 3% sequentially to $1.7 billion, setting a new quarterly record on strong data center SSD demand. The Mobile Business Unit (MBU) saw revenue decline 19% sequentially to $1.5 billion as smartphone customers focused on improving inventory levels. Embedded Business Unit (EBU) revenue dropped 10% sequentially to $1.1 billion, impacted by inventory adjustments in the automotive and industrial markets.
Data center revenue was a standout, surpassing 50% of Micron's total revenue for the first time. High-bandwidth memory (HBM) revenue more than doubled sequentially, with the company remaining on track to meet its HBM3E targets. Micron’s HBM TAM estimate has been raised to over $30 billion for 2025, reflecting the rapid adoption of AI-driven infrastructure. The company highlighted its leadership in HBM technology, noting that its HBM3E products are designed into NVIDIA’s Blackwell platforms, and it has already secured sales through 2025. The HBM market remains fully sold out for the year, with pricing already determined. Long-term, Micron expects HBM growth to be transformational, projecting the market will exceed $100 billion by 2030, surpassing the size of today’s entire DRAM market.
The PC market remains under pressure, with unit volumes expected to remain flattish in 2024, slightly below prior expectations. However, Micron remains optimistic about AI PC adoption, which is driving higher DRAM content per device. Entry-level AI PCs require a minimum of 16GB of DRAM, while higher-end devices demand 24GB or more, up from an average of 12GB last year. Growth in PC demand is expected to accelerate in 2025, driven by Windows 10 end-of-life and an aging installed base, with unit growth forecasted in the mid-single-digit percentage range.
The mobile segment exhibited similar inventory challenges. Smartphone unit growth remains on track for mid-single digits in 2024 and low-single digits in 2025. However, DRAM content per smartphone continues to expand, with 60% of smartphones now shipping with 8GB or greater memory configurations, significantly higher year-over-year. Micron expects mobile bit shipments to improve in the second half of the fiscal year as inventories normalize. The company continues to focus on premium segments, where demand for high-performance DRAM and NAND solutions remains robust, particularly for AI-driven features like local search and contextually aware user interfaces.
The automotive and industrial markets presented a weaker picture. Micron noted lower-than-expected automotive production, particularly as customers shifted toward value-trim vehicles instead of premium models, coupled with slowing electric vehicle (EV) growth. These factors have dampened near-term demand for memory and storage content. Despite near-term inventory adjustments, the company remains optimistic about the long-term outlook, as advanced driver-assistance systems (ADAS), AI, and infotainment systems are expected to drive strong content growth. Industrial market recovery is anticipated in late 2025.
On pricing, DRAM revenue reached $6.4 billion, representing 73% of Micron’s total revenue, driven by low-double-digit percentage increases in bit shipments and high-single-digit ASP growth. Strong demand from the data center market underpinned these results. In contrast, NAND revenue declined 5% sequentially to $2.2 billion, with bit shipments and ASPs both falling in the low-single-digit range. Micron highlighted continued softness in NAND markets, particularly in consumer devices, and is taking supply actions to restore balance, including slowing node transitions and reducing wafer starts by a mid-teens percentage.
Micron’s demand outlook for DRAM remains robust, with bit demand growth expected in the high-teens percentage range for 2024 and mid-teens for 2025. The company anticipates that leading-edge DRAM supply will remain tight due to the ramp-up of HBM production. In NAND, however, Micron revised its demand growth outlook downward to the low-double digits for 2024-2025, citing slower content growth in consumer devices and temporary moderation in data center SSD purchases following rapid growth in prior quarters.
The company’s inventory levels are expected to normalize by spring 2025, despite Q2 bit shipments being weaker than previously anticipated. Micron projects stronger bit shipment growth in the second half of fiscal 2025 as customer inventories stabilize. Management reiterated its confidence in achieving tight DRAM inventory levels below target by year-end, with improving demand conditions in H2.
Micron plans to spend approximately $14 billion in capital expenditures in FY2025, prioritizing investments in DRAM and HBM production. The company is accelerating its 1β and 1γ DRAM node ramps to support the growing demand for AI and high-performance computing. Conversely, NAND capex has been reduced to align supply with slower demand growth. Micron’s disciplined capex management reflects a focus on technology leadership in DRAM while ensuring supply discipline in the NAND market.
Cash flow from operations totaled $3.2 billion in Q1, representing 37% of revenue, while free cash flow was $112 million. Micron returned no capital to shareholders via buybacks during the quarter but will pay a dividend of $0.115 per share on January 15. The company maintained strong liquidity, with $11.2 billion in total cash and credit availability at quarter end.
Micron’s outlook for Q2 FY2025 reflects near-term pressures from inventory reductions and weaker NAND pricing. Revenue is expected to range between $7.7 billion and $8.1 billion, with adjusted EPS between $1.33 and $1.53. Gross margin is guided to 37.5%-39.5%, reflecting continued HBM strength but softer NAND performance. Management remains optimistic about returning to growth in the second half of the fiscal year, driven by improving customer inventories and strong demand for AI infrastructure.
In conclusion, Micron delivered solid Q1 results, fueled by data center and HBM growth, but near-term challenges related to customer inventories and NAND pricing weighed on its Q2 outlook. The company remains well-positioned for long-term growth, supported by its leadership in HBM and DRAM technologies and its strategic focus on AI-driven demand.