Micron Will Have Better Year in 2025: New Street's Ferragu

Summary

The 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

• 📈 The company has seen significant growth with an 80% increase in revenue and nearly doubled their bottom line.
• 🤔 There is a debate on whether investors' expectations are unrealistic or if they are simply being impatient with the growth cycle.
• 💡 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.
• 🔄 The memory market is recovering from a deep down cycle, with AI driving a strong increase in demand for high bandwidth memory (HBM) chips.
• 🕒 It takes time for the fabs (fabrication plants) to reach full capacity, which is a process affected by the growing demand from AI technologies.
• 💹 The speaker anticipates that the economic model for Micron will show significant improvement in the short term, contrary to current market consensus.
• 🚀 The demand for HBM is skyrocketing, even though it represents a small percentage of the total market volume, due to its specialized packaging requirements.
• 📉 DRAM (Dynamic Random-Access Memory) was at a very low point about nine months ago, indicating an upswing from a low base.
• 🔑 Micron's commentary highlights AI-driven demand causing tightness on leading-edge nodes and expects continued supply issues with industry supply lagging behind demand.
• 💰 The company expects to be able to increase prices at least through the full year of 2024, aligning with the speaker's expectations.
• 🔍 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

00:00

📈 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.

Keywords

💡Revenue

Revenue refers to the total income generated from the sale of goods or services by a company. In the context of the video, the company has experienced significant growth in revenue, with an 80 percent increase, which is a key indicator of business performance and financial health.

💡Bottom Line

The 'bottom line' is a term used to describe a company's net income or profit, which is the final figure after all expenses have been deducted from the revenue. The script mentions that the company has nearly doubled its bottom line, indicating strong financial performance.

💡Investors

Investors are individuals or entities that put money into financial assets with the expectation of generating a profit. The script suggests that investors may have high expectations or be 'in a rush,' which could imply impatience or unrealistic demands for rapid returns.

💡Memory Chips

Memory chips are electronic components used in computers and other devices to store data. The script discusses the manufacturing and sales of memory chips, emphasizing that profit is made not just by selling more chips, but by selling more than can be manufactured, indicating supply and demand dynamics.

💡AI (Artificial Intelligence)

AI refers to the simulation of human intelligence in machines that are programmed to think like humans and mimic their actions. In the script, AI is highlighted as a driving force behind the strong growth in demand for high bandwidth memory (HBM) chips.

💡HBM (High Bandwidth Memory)

HBM is a type of memory technology that provides high data transfer rates and is used in high-performance computing applications. The script notes that demand for HBM chips is growing rapidly due to the rise of AI, indicating a significant market trend.

💡Fabs

Fabs, short for fabrication plants or fabs, are manufacturing facilities where semiconductors like memory chips are produced. The script mentions that existing fabs are dealing with overcapacity and that it takes time for them to reach full capacity, which is a key factor in the industry's growth cycle.

💡CapEx

CapEx stands for capital expenditure, which refers to the funds a company spends to acquire, maintain, or improve its fixed assets. The script points out that manufacturers have not been investing much in capex for the past 18 months, which could impact the economic model of companies like Micron.

💡Micron

Micron is a leading company in the semiconductor industry, known for producing memory and storage products. The script discusses Micron's financial performance and expectations for its future, suggesting that the company's economic model is poised for significant growth.

💡Supply and Demand

Supply and demand is the economic principle that describes the relationship between the availability of a product and the desire for it among consumers. The script talks about the supply constraints in HBM due to packaging production challenges and how this affects the overall market dynamics.

💡Gross Margins

Gross margins represent the profit a company makes after deducting the cost of goods sold from the revenue, but before operating expenses are subtracted. The script suggests that as HBM capacity ramps up and fills the excess capacity of main front-end fabs, gross margins could reach new highs, indicating improved profitability.

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