Micron (MU 0.44%) posted its latest earnings report on Sept. 27. For the fourth quarter of fiscal 2023, which ended on Aug. 31, the memory chipmaker's revenue dropped 40% year over year to $4 billion but still exceeded analysts' estimates by $80 million. Its adjusted net loss of $1.2 billion marked a steep drop from adjusted net profit of $1.6 billion a year ago, but its adjusted net loss of $1.07 per share cleared the consensus forecast by $0.11.
Micron's slowdown wasn't surprising since its growth has been throttled by the broader slowdown of the semiconductor market, but its stock still dipped after the report and remains more than 30% below its all-time high from last January. Let's review the bear and bull cases for Micron to see if it's worth buying.
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What the bears say about Micron
The bears will tell you that Micron's revenue has declined year over year for five consecutive quarters as the market's demand for its DRAM and NAND chips -- which accounted for 69% and 30%, respectively, of its fourth-quarter revenue -- dried up. That slowdown was caused by the post-pandemic slowdown in PC sales, the end of the 5G upgrade cycle for smartphones, and macro headwinds across its other end markets.
Many chipmakers, including Micron, had also produced too many chips to deal with the chip shortage during the pandemic -- and that overproduction led to a supply glut and plunging prices. That's why Micron's adjusted gross margins have stayed negative over the past three quarters.
Intense competition from Samsung and SK Hynix in the DRAM market -- as well as Samsung, Kioxia, SK Hynix, and Western Digital in the NAND market -- could persist and continue to compress Micron's gross margins. The company also faces regulatory headwinds in China: the Cyberspace Administration of China (CAC) barred the country's key infrastructure providers from purchasing Micron's chips as the tech war intensified earlier this year.
The bears will also point out that Micron turned unprofitable on an adjusted basis in fiscal 2023, and analysts expect its bottom line to stay in the red in fiscal 2024. All of that red ink could make Micron an unappealing investment, as long as interest rates stay high. It could also make its stock difficult to value, relative to its potential earnings growth. As for its top-line growth, it still isn't a screaming bargain at 4x its projected sales for fiscal 2024.
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What the bulls say about Micron
The bulls will tell you Micron's cyclical slowdown is nearly over. The company expects revenue to rise 3%-13% year over year in the first quarter of fiscal 2024, while analysts anticipate 32% revenue growth for the full year.
Micron also expects its adjusted gross margin to land between negative 4% and positive 2% in the first quarter. This would mark a sequential improvement from its negative adjusted gross margin of 9.1% in the fourth quarter. Analysts expect it to narrow its adjusted net loss from $4.45 per share in fiscal 2023 to $0.86 per share in fiscal 2024.
During its latest conference call, Micron CEO Sanjay Mehrotra attributed that rosier outlook to "robust year-over-year bit demand growth in calendar 2024 for both DRAM and NAND, driven by improving end-market demand, normalized customer inventory levels, content growth across products, and ongoing growth in AI." Mehrotra also said "pricing has now bottomed ... [thanks to] ongoing demand growth, customer inventory normalization, and industrywide supply reductions." Furthermore, the company expected a "record industry total addressable market (TAM) in calendar 2025 ... with more normalized levels of profitability."
As for China's ban on Micron's chip sales to key infrastructure providers, Mehrotra said it "made strong progress with respect to mitigating the effects as well with our global customers who are not impacted by the CAC decision." As for the competition, the bulls will tell you that Micron generally makes denser and more power-efficient DRAM and NAND chips than its larger competitors -- and that technological edge should make it a preferred brand for processing data center tasks.
Which argument makes more sense?
Micron's stock might remain volatile, but the bearish thesis is losing its teeth while the bullish thesis is sharpening its horns. Investors who start to accumulate Micron stock today could be well rewarded once its next growth cycle kicks off.
