Micron Will Have Better Year in 2025: New Street's Ferragu
Summary
TLDRThe transcript discusses Micron's financial performance amid high expectations, noting an 80% revenue growth and a doubling of the bottom line. It attributes this to the memory chip market's recovery and AI-driven demand for high bandwidth memory (HBM) chips, which is expected to outpace supply. The speaker anticipates a stronger economic model for Micron next year, driven by limited capacity and underutilized fabs, with a focus on increasing HBM packaging production to meet growing demand and improve margins.
Takeaways
- đ The company has seen significant growth with an 80% increase in revenue and nearly doubled their bottom line.
- đ€ There is a debate on whether investors' expectations are unrealistic or if they are simply being impatient with the growth cycle.
- đĄ Profit is made not just by selling more memory chips, but by selling more than can be manufactured, indicating a supply-demand dynamic at play.
- đ The memory market is recovering from a deep down cycle, with AI driving a strong increase in demand for high bandwidth memory (HBM) chips.
- đ It takes time for the fabs (fabrication plants) to reach full capacity, which is a process affected by the growing demand from AI technologies.
- đč The speaker anticipates that the economic model for Micron will show significant improvement in the short term, contrary to current market consensus.
- đ The demand for HBM is skyrocketing, even though it represents a small percentage of the total market volume, due to its specialized packaging requirements.
- đ DRAM (Dynamic Random-Access Memory) was at a very low point about nine months ago, indicating an upswing from a low base.
- đ Micron's commentary highlights AI-driven demand causing tightness on leading-edge nodes and expects continued supply issues with industry supply lagging behind demand.
- đ° The company expects to be able to increase prices at least through the full year of 2024, aligning with the speaker's expectations.
- đ The speaker is interested in hearing about Micron's plans for increasing production capacity for HBM packaging during the conference call, as it will indicate the speed at which HBM can ramp up and fill the capacity of the main fabs.
Q & A
Why might investors have high expectations for a company that has shown significant revenue growth?
-Investors may have high expectations due to the company's impressive growth in revenue by over 80 percent and nearly doubling their bottom line, which indicates strong financial performance and potential for further growth.
What does the speaker imply about the rush of investors in the context of memory chip sales?
-The speaker suggests that investors might be too eager, not considering that profits come from selling more memory chips than can be manufactured, not just from increased sales volume.
What is the current state of the memory chip market according to the speaker?
-The speaker indicates that the market is just recovering from a deep down cycle and is now experiencing a strong demand for HBM (High Bandwidth Memory) chips, driven by the rise of AI.
How does the demand from AI impact the memory chip market?
-The demand from AI is expected to first absorb the overcapacity of existing fabs (fabrication plants), which will take time due to the production process of memory chips.
What has been the impact of manufacturers' reduced spending on capex over the last 18 months?
-The reduced spending on capital expenditures (capex) has led to an underutilization of fabs, which, when combined with the growing demand for HBM chips, is expected to result in a significant improvement in the economic model of companies like Micron.
What does the speaker anticipate for Micron's performance in the near term and next year?
-The speaker expects Micron's performance to be slightly below consensus in the near term but anticipates a much better outlook for the next year than what most analysts forecast.
How do DRAM and HBM memory chips compare in terms of market volume and growth?
-DRAM is a larger market with a low bottom about nine months ago, recovering from a trap, while HBM, although a smaller market segment, is growing rapidly due to its unique packaging requirements and demand from AI.
What is the current situation with HBM capacity and its impact on the market?
-HBM capacity is currently increasing rapidly from a low base due to its unique packaging requirements, which takes time to ramp up, leading to a supply constraint and potential price increases.
What does Micron expect regarding the supply and demand of memory chips in the coming year?
-Micron expects continued supply issues with industry supply falling below demand, and they anticipate being able to increase prices at least through the full calendar year of 2024.
What might confuse investors about the current state of the HBM market?
-Investors might be confused because there is a supply constraint in HBM packaging production lines, but not yet for the die itself, which is expected to change in the next two to three quarters, leading to stronger economics for Micron.
What would the speaker like to hear about on the conference call regarding Micron's production capacity?
-The speaker is interested in hearing about Micron's plans for increasing the production capacity for the backend of HBM packaging, which will provide insights into when HBM can fill up the front-end fabs and lead to increased margins and pricing across the board.
Outlines
đ Revenue Growth and Investor Expectations
The speaker expresses surprise at the high expectations set by investors despite significant revenue growth of over 80% and a near doubling of the company's bottom line. They suggest that investors may be too eager for quick results, emphasizing that profits come from selling more memory chips than can be manufactured. The speaker also discusses the impact of AI on the demand for high bandwidth memory (HBM) chips, noting the time it takes for fabs to reach full capacity and the potential for Micron's economic model to improve significantly in the short term. They predict a better performance for Micron in the next year than most analysts forecast, advocating for patience and a longer-term perspective.
Mindmap
Keywords
đĄRevenue
đĄBottom Line
đĄInvestors
đĄMemory Chips
đĄAI (Artificial Intelligence)
đĄHBM (High Bandwidth Memory)
đĄFabs
đĄCapEx
đĄMicron
đĄSupply and Demand
đĄGross Margins
Highlights
The company's revenue grew by over 80% and their bottom line nearly doubled.
Investors may be too hasty in their expectations, not considering the cyclical nature of memory chip sales.
Profit is made by selling more memory chips than can be manufactured, not just by increased sales volume.
The industry is recovering from a deep down cycle in memory chip production.
AI is driving a strong demand for high bandwidth memory (HBM) chips.
AI's demand for HBM chips will first need to absorb the overcapacity of existing fabs.
It takes time for fabs to reach full capacity due to the time required to produce chips.
Once fabs are at full capacity, the full potential of AI for memory growth will be realized.
Manufacturers have not been investing much in capital expenditures for the past 18 months.
The economic model of Micron is expected to improve significantly in the short term.
Expectations for Micron's performance next year are higher than most analyst forecasts.
Patience is required for one or two more quarters to see the full impact of AI on memory chip economics.
DRAM and HBM products are both experiencing upswings, but with different market trajectories.
DRAM was at a very low point nine months ago, and fabs are underutilized as a result.
HBM is a small but rapidly growing segment of the memory chip market.
HBM requires different packaging, which takes time to ramp up production capacity.
Micron's commentary indicates that AI-driven demand is causing tightness on leading-edge nodes.
Supply constraints in HBM are due to difficulties in packaging production lines, not undersupply of the chips themselves.
Micron expects to increase prices at least through the full calendar year of 2024.
Investors are interested in hearing about Micron's plans for increasing production capacity for HBM packaging.
The speed at which HBM can ramp up will determine when it fills the excess capacity of main front-end fabs.
Once HBM fills the capacity, pricing and gross margins are expected to increase significantly across the board.
Transcripts
I know expectations were high but it
kind of makes me scratch my head when I
see a company grow Revenue by 80
something percent and and almost double
their bottom line I I sort of Wonder are
investors just being unrealistic
here I wouldn't say unrealistic but
there too much of of in a rush you know
in memory you don't make money because
you're selling more memory chips you
make money only if you sell more memory
chips than you can manufacturer and so
we're just coming out of a of a very
deep cycle down cycle in memory
uh and we have ai coming uh coming up
like driving very very very strong
growth in in demand for hbm chips and so
this demand from AI needs first to suck
out you know the over capacity of
existing Fabs and it takes time because
it takes time to to get these chips out
and once the Fabs will be at full
capacity then we will see in the
economics of my the full potential of AI
for memory which is very strong grow
over Limited capacity manufacturers have
not been spending much on capex for the
last 18 months and that's where really
like the economic model of of Micron is
going to take a significant sharp term
so I'm not surprised by the numbers
today I was expecting things like
slightly below consensus in the near
term but I expect next year to look much
better than what most analysts forecast
for micron so it's just a game of being
patient one or two more
quarters more quarters Pier you
mentioned the glut of memory chips that
we had seen that Micron is just getting
over over we know that Micron makes both
Dam those memory chips and high
bandwidth memory chips are both products
seeing upswings of the same kind how did
their trajectories compare with one
another so it's a very good question so
dram was at a very very low button um
eight like like nine months ago so we we
were just getting out of a trap so the
Fabs uh because of that are
underutilized hbm is a very small
percentage of the volume of the market
it's still single digit percentage of
the total but it's growing through the
roof but hbm requires like a different
packaging for the for the memory chip so
it takes a bit of time to get that hbm
capacity up and running so you see hbm
going through the roof from a very low
base and the mainstream dram product
coming back Cally at the same time
that's what we are seeing at the moment
it's interesting too I mean just some of
the commentary we're getting some
additional commentary Pierre coming out
of the slides here Micron talking about
how Aid driven demand is causing
tightness on Leading Edge nodes it
expects to see uh uh continued supply
issues uh and says that those industry
Supply will be below demand going
forward and it also says though that it
see feels like it's going to be able to
increase prices uh at least through uh
the full year the calendar year of
2024 that's exactly in line with uh with
what I would be AC accepting and so
there is a one thing that might confuse
a bit investors at the moment is that
you have Supply constraint in hbm
because it's difficult for these guys to
run to the packaging production lines
but you you you you are not in under
Supply yet for the die itself and that's
what's going to come in the next two
three quarter and that's going to to
make mic economics look way way stronger
than they are today yeah Pi final
question to you very quickly what do you
want to hear from on the conference call
today um I'd love to hear them talk
about um uh you know how they
see the increase in production capacity
for the back end of hbm for the
packaging of hbm so that it gives me
good hints at when hbm is going to fill
up the front end Fab the one that is
manufacturing the DI that's really the
key you know how fast can hbm ramp so
that it can fill in the excess capacity
of the main front end Fab and that's
when you will see margins like pricing
shooting up across the board not only in
hbm everywhere and then gross margins
going to to new highs
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