The Six Five team discusses Micron Q3FY24 Earnings.
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Transcript:
Patrick Moorhead: I mean, we’ve got the AI craze, we’ve got AI PCs, AI smartphones, is Micron performance actually reflecting this?
Daniel Newman: Yeah, Pat. So I think there was a lot of what I would call first network effects of the NVIDIA craze, the AI craze, and who are the companies that are immediately benefiting? That’s probably the question you and I are being asked more than anything by the media, and of course by our customers and by end customers, is, “Okay, where else is there value?” Not to say that there’s not enough NVIDIA to go around, but as that has rocketed, there’s a lot of questions. CapEx, is it all being pulled forward? Are people actually consuming this stuff? And if it is, where is it being consumed? But in the meantime, whether it’s being consumed or not, if these companies are going to stand up services around AI, around H100s and Blackwell, and in the future around Rubin, they’re going to need a whole bunch of what’s called high bandwidth memory. And who are the companies doing that?
Well, obviously we’re talking Micron here. You got companies like SK Hynix, you got Samsung and others that are all going to play in this space. And so people are really on the edge of their seat looking for Micron to have a banger of a quarter, because if NVIDIA had one, the expectations, especially because of the pairing of Micron with NVIDIA hardware, would be that this would’ve been huge. So the result, it was good. I wanted to be like, “It’s great.” But it was good, it was good, they beat on earnings at 62 cents. They had earnings, which by the way, for Micron wasn’t something they’d actually had for some time, they’d had losses. And on the revenue side, they came in at 6.81. Look, the actual capacity for this particular type of memory is sold out. So probably one of the reasons that there was a 7% up to maybe even a 10% decline in the wake of this comes down to a couple of things.
Long and short it came down to in the process of Micron selling this out, they did this through a vehicle called long-term agreements. And they set up a number of long-term agreements, where effectively they probably got 5 or 10% price premiums over where they were at. But I think the market really was hoping that they would have some capacity that they could take advantage. Because anyone that knows the memory market, heavily volatile, heavily cyclical, and very commoditized historically. So this was that inflection for the first time in a long time, that memory had the opportunity to be so important and so unique to this secular trend that is AI and GPUs, that I think the market was hoping that Micron was going to be able to come out and say they were drafting some huge contractual growth in their LTAs or long-term agreements at a big, big premium.
And I think that’s really why the market soured a bit, was they did sell out, they’ve sold out for the longer term through 24 through 25, but not at the premium the market had hoped that they would sell out at. Having said that, I’d also attribute some of the sort of selling just to this exuberant expectations. Meaning people wanted a big beat, they got a beat, it wasn’t a huge beat, the guide was okay, these LTAs, all this together. So people are like, “All right, it’s good. I made some money, I’m going to get out.” But thesis, for us, we’re not equities guys, I’m not actually adjusting a spreadsheet here or setting any price targets despite my joke earlier. But what I will say is, how important is this particular technology? It is very, very important. And this whole wave… And by the way, it’s not only about AI, and GPUs, and data center, it’s also about AI PCs. Which, Pat, you and I are playing on here right now doing our podcast.
It’s about next generation smartphones, super cycles of iPhones and Android devices that are going to be AI powered, all of which means more content from Micron, not just HBM, more memory content across the board to support all this additional computing. So it’s hard to not think Micron has a bit of a trajectory over the next few years, but it may not run as far as fast as an NVIDIA. First of all, memory never gets the same cool factor as logic. And second of all, these LTAs unfortunately sort of strapped them in. It was a hedge in the short term, but it might’ve been the wrong bet in the long term, and I think some investors are sort of putting Micron in the penalty box. But overall, what a run. I mean, look, they went from huge losses to huge profits, good turn, they made some good decisions, I’d give it a B plus.
Patrick Moorhead: Yeah, I mean, I look at year-on-year, and they’ve nearly doubled revenue. They were losing 668 million on the gross margin line, they’re now making 1.8 billion. I mean, Non-GAAP EPS went from losing $1.43 to making 62 cents a share, and I just think it’s a phenomenal turnaround. The market had a lot to do with it. But also if you remember, Micron was very conservative. They pulled back on some CapEx, they pulled back big time on expenses. And like we’ve talked many times on here, this is the wheel of memory and storage market, it is boom and bust. And the interesting thing is that I think there’s a lot more to come. What hasn’t hit yet is the effect of the AI PC and the AI smartphone, and that comes in two forms. Let’s just pretend for a second that we can take one year off accelerate PC and smartphone run rates. I mean, that would be phenomenal, that’s a 25 to 30% boost right there. We’re already seeing pricing going up.
And then the other element is the memory capacity and the storage capacity for AI PCs and AI smartphones are going up. We saw with Apple’s disclosure, you have to have at least eight gig of ram, most Apple phones have four and six gigs of ram. And then if you look at Copilot+ PCs, it’s very typical to see an eight gig of RAM Notebook. I never recommend it, but you see them out there. Heck, you even see four gigs of RAM. And minimum base, there are 16 gigs. Well, let’s talk about the storage size. A good thing I like to look at, I downloaded LM Studio from the Snapdragon site, and the size of these small models are between four and six gigabytes. And if I need to put 40 of those on my system, and by the way, there’s 40 of these on the new Copilot+ systems out there, you can do the addition yourself. So these are elements that I don’t think are factored into anything from Micron. So good job, Micron, keep it up. Really interested to dive into their hypothesis on AI PC and AI smartphone.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
