Micron soars after AI growth helps bolster revenue forecast

MICRON Technology, the largest United States maker of computer memory chips, jumped in late trading after giving a surprisingly strong revenue forecast for the current quarter, buoyed by demand for artificial intelligence (AI) hardware.

Fiscal third-quarter revenue will be US$6.4 billion to US$6.8 billion, the company said on Wednesday (Mar 20). That compares with an average analyst estimate of US$5.99 billion. Micron will have earnings of about 45 US cents a share, minus certain items. Analysts projected 24 US cents.

Micron and its rivals are emerging from one of the worst slumps the memory chip industry has suffered, triggered by weak demand for personal computers (PCs) and smartphones. But executives are optimistic about the future as the booming market for AI gear helps chipmakers return to growth and profitability.

“We believe Micron is one of the biggest beneficiaries in the semiconductor industry of the multiyear opportunity enabled by AI,” chief executive officer Sanjay Mehrotra said.

The shares gained 15 per cent in late trading after the results were released. They had climbed 13 per cent to US$96.25 this year through the close.

Mehrotra has promised investors that 2024 will mark a rebound for the industry and 2025 will see record sales levels. But Micron will need to make enough ultrafast memory, which works with Nvidia chips to help data centre operators develop AI software.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

AI-related systems use something called high-bandwidth memory, or HMB. That type of chip is new and less of a commodity. That means companies such as Micron can charge a much higher price for it.

Micron got its first revenue from a form of this memory known as HBM3E in its most recent quarter. The semiconductors are part of Nvidia graphics chip-based AI accelerators, Micron said. And Micron expects “several hundred million” US dollars of revenue from HBM products in fiscal 2024. The majority of its production of such chips is sold out for 2025, it said.

AI software is created by bombarding software with information. The process can involve trillions of parameters and is highly reliant on memory. In order to avoid bottlenecks and keep expensive processors working flat-out, Micron and its competitors have developed chips that communicate with other components much faster than traditional memory chips.

In the second quarter, which ended Feb 29, Micron’s revenue rose 58 per cent to US$5.82 billion. The Boise, Idaho-based company had earnings of 42 US cents a share, excluding certain items. That compares with estimated sales of US$5.35 billion and a projected loss of 24 US cents a share.

“Micron has returned to profitability and delivered positive operating margin a quarter ahead of expectation,” Mehrotra said on a conference call with analysts.

Micron competes with South Korea’s Samsung Electronics and SK Hynix in selling chips that provide short-term memory in computers and phones. Micron also makes flash memory, which provides longer-term storage in those devices.

Both types of memory follow industry standards, meaning that parts from different companies are interchangeable and can be traded like commodities. The downside is that prices can be volatile, and customers can switch from one supplier to another.

Memory-chip makers have been trying to push into new markets, such as data centres, cars and an increasing array of gadgets – making them less dependent on phones and PCs. But they have not become diversified enough to offset the swings in demand within their core markets, as they experienced in 2023.

Micron is looking to makers of personal computers and smartphones to return to steady ordering. Many of them had scaled back demand to draw down the inventory they had on hand. Weak ordering from those customers pushed chip prices down below the cost of production last year.

Earlier Wednesday, the US Department of Commerce announced it will award Intel US$8.5 billion in grants and as much as US$11 billion in loans to help fund an expansion of its semiconductor factories in the US. The announcement was the biggest disbursement so far from the Biden administration’s Chips and Science Act. No other big chipmakers have so far been publicly promised support.

Micron said it is maintaining its budget for new plants and equipment for fiscal 2024 at US$7.5 billion to US$8 billion. It will proceed with projects in China, Japan and India. Proposed US expansions – in New York State and Boise – “require Micron to receive the combination of sufficient Chips grants, investment tax credits, and local incentives to address the cost difference compared to overseas expansion”, Mehrotra said. BLOOMBERG