Micron EarningsJust two weeks ago, I wrote about how I thought this was a mid-memory cycle. I mainly supported the memory companies if you didn’t read between the lines. Fast-forward a week, and it seems that the calls for the end of memory were a bit premature. I tweeted how everyone was short on this earnings result, and the outcome would always be the opposite. Here’s a little wisdom: markets are discounting and anxiety machines. Almost always, nothing is ever as bad as feared, and this was no exception. Let’s talk about the results and what has changed. Micron Technology reports Q4 EPS $1.18 ex-items vs FactSet $1.11
Many expected a much worse guide than this, to $8 billion. The reasoning was driven mainly by falling DDR4 spot prices and overstocked inventory in Korea. Dylan tweeted that spot prices matter less than ever because many logic players purchase on contract and package with the die. That is one part of it. The other part is that many memory OEMs are dumping their DDR4 inventory as production shifts to DDR5. Investors focused on a backward-looking metric when the reality was that the results were good. I think the reality is the market is going to freak out about things it can see well, which is DDR4 pricing (and a minority of the market now), and never believe the unknowable HBM demand will be fine. Furthermore, there’s been a persistent oversupply of HBM calls despite almost any sane bottoms-up build-up saying otherwise. Let’s walk through specific callouts specifically focused on HBM. HBM margins are accretive to DRAM margins even as DRAM margins have improved.
Moreover, they expect it to be accretive for fiscal year 2025. The answer is yes, despite prices being locked in already. HBM is still a hot market, folks.
What’s more, HBM, on the calendar for 2025, is expected to be over 25 billion.
That’s a crazy CAGR, and I wrote in my 2024 year-end outlook that I expected the 2024 estimate to be smashed. The “bull case” was 9 billion at the time, which looked like it would be extremely light. If it continues to grow at this rate, HBM will be the second-largest market in memory before the decade's end! What a crazy growth story! Let’s talk more about the Bit cannibalization thesis I outlined earlier this year.
There continues to be a solid supply-demand balance. What’s more, it looks like Micron is going to bite on the “New Era of NAND” thesis. In this presentation, WDC pleaded with the market to stop spending capacity on the NAND transition and lengthen the industry transition. Here’s the public confirmation of WDC’s message: now it’s time for the rest of the industry to follow suit.
I think that’s good. WDC doesn’t want to spend on capex, and all DRAM players wish to spend on HBM. Despite that, this will all, in aggregate, be a meaningful step up in capex. They gave their preliminary capex guide and expected it to be “meaningfully higher.” That implies more spending on shells than tools, which raises some interesting questions. Doing the math implies about ~13.5 billion dollars of capex at today’s revenue expectations. That’s a new high in capex compared to fiscal year 2022 and should be a clearing event for memory WFE spending. Speaking of which, this brings me to my second and paywalled section: Semicap. ... Unlock this post for free, courtesy of Doug OLaughlin. |