Just when it looked like Micron Technology (NASDAQ:MU) had completed its turnaround, the memory specialist dropped a bomb on investors last week with a conservative outlook indicating a slowdown.

It wasn't long ago that the chipmaker delivered an impressive quarterly report and looked all set to step on the gas thanks to favorable memory market conditions. Strong memory demand and an improvement in average selling prices (ASPs) were two solid tailwinds Micron was sitting on. But CFO David Zinsner recently tempered investors' enthusiasm by pointing out that the company's top-line growth in both the current quarter and the next won't be as good as previously expected.

Person holding a 5G smartphone.

Image source: Getty Images

Micron anticipates $5.4 billion in revenue in the next quarter, compared to Wall Street's expectation of $5.8 billion. The year-over-year revenue growth would be just 5%, which is a dampener considering that the expectation was for a double-digit increase. Not surprisingly, Micron stock has pulled back of late.

But there's one potential catalyst that could help the company regain its mojo.

MU Chart

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Micron's mobile business is on a roll

In the third quarter of fiscal 2020 ending on May 28, Micron's mobile business unit accounted for 28% of the total revenue at $1.5 billion. The segment's revenue jumped nearly 30% from the prior-year period's revenue of $1.17 billion when it accounted for 24.5% of the top line. The mobile business unit's growth easily outpaced that of other business segments, as well as Micron's overall revenue increase of 13%.

Micron attributed this solid growth to an increase in demand for mobile dynamic random access memory (DRAM) as smartphone demand in China recovered. That recovery was primarily driven by the launch of 5G devices. A total of 65 smartphones with 5G capabilities have been launched in China in the first four months of 2020, and have played a key role in driving shipments over there.

According to Counterpoint Research, a third of China's mobile shipments in the second quarter of 2020 were 5G devices, compared to 16% in the first quarter. So it wasn't surprising to see an increase in demand for Micron's mobile DRAM, as it counts key Chinese smartphone original equipment manufacturers (OEMs) such as Xiaomi as customers.

The good news for Micron is that 5G smartphones are just getting started. Fitch Ratings predicts that 5G smartphones will penetrate 17% to 20% of the global smartphone market by 2021. That would be a nice jump considering that 24 million 5G handsets were sold in the first quarter of 2020 out of a total of 274.8 million smartphones, according to Strategy Analytics, indicating that penetration was less than 9%.

More importantly, 5G smartphones would be more than just a volume play for Micron, as they are expected to carry more mobile DRAM to support higher-resolution images, video, and intensive gaming. These factors are expected to drive a nice bump in both DRAM and NAND content as smartphones make the jump from 4G to 5G, according to Micron's estimates.

Micron slide showing mobile memory growth.

Image source: Micron Technology presentation

Investors shouldn't panic just yet

Micron has received a slew of price target cuts since releasing its conservative guidance. Wall Street sees memory demand waning in the near term thanks to inventory corrections from clients that accumulated memory chips earlier out of supply-related fears caused by the COVID-19 pandemic.

Those customers are probably not buying enough memory chips from Micron now -- but demand could pick up the pace once inventory levels at the company's clients normalize. The company is seeing strong growth in its mobile business right now, while the storage business is also in great shape thanks to catalysts such as enterprise solid-state drives and next-generation gaming consoles.

The deployment of 5G networks is expected to have a positive impact on the data center market as well in the future, so Micron could regain its mojo once that happens. As such, the short-term challenges that Micron faces right now may fade in the long run, and it could turn out to be a top 5G stock once that happens.