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.