In fiscal 2022, Micron Technology (MU +4.07%) earned $8.7 billion, one of the best years the memory maker had ever reported. In fiscal 2023, it lost $5.8 billion. Revenue nearly halved to $15.5 billion, and gross margin collapsed from 45% to negative 9%.
That is what the end of a memory boom looks like. And it is worth studying now, because Micron is in the middle of a far bigger one.
The company's net income over its last 12 reported months comes to $50.5 billion, nearly six times what that fiscal 2022 peak delivered. Its most recent reported quarter alone, the fiscal third quarter ended in May, brought in $28.2 billion of net income under generally accepted accounting principles (GAAP) -- double fiscal 2018's full-year record.
So what happens to memory earnings after a top? Micron's own income statement answers that question better than any forecast could.
Image source: Micron.
The bust, year by year
The speed is the striking part. Micron's revenue fell 49% in fiscal 2023, to $15.5 billion from $30.8 billion the year before. Gross margin, 45.2% in fiscal 2022, finished fiscal 2023 at negative 9.1% -- meaning the company was selling chips for less than they cost to make. And the bottom line swung from an $8.7 billion profit to a $5.8 billion loss in the space of a single fiscal year.
Nothing about the company had broken. Memory chips are commodities, demand stalled, industry supply kept growing anyway, and prices fell until the profit was gone.
Of course, investors who watched it happen knew the script. It had run before.
The cycle before ran slower
The 2023 bust wasn't a one-off, though the cycle before it took a different shape. Micron's net income peaked at $14.1 billion in fiscal 2018. It fell to $6.3 billion in fiscal 2019, then to $2.7 billion in fiscal 2020 -- down 81% from the peak over two years, without ever tipping into a loss.
The shapes differ, one fast and deep, the other slower and shallower. In both, though, most of the peak's earnings were gone within about two years of the top.
Zoom out further and the pattern holds. Micron has recorded an annual loss three times in the last 15 years, most recently in fiscal 2023.
NASDAQ: MU
Key Data Points
A peak of a different size
The artificial intelligence (AI) boom running now dwarfs both of those cycles. Micron's revenue is running near $90 billion a year, against the $15.5 billion fiscal 2023 produced, and the June report showed quarterly sales at more than four times the year-ago level. And the quarter ahead is expected to be bigger still. Management's latest guidance called for about $50 billion of revenue in the fiscal fourth quarter alone.
Management, for its part, is behaving like a company that expects demand to hold -- and I don't doubt that today it does.
"Micron is investing at record levels in technology, products and supply to address our customers' rapidly growing demand," CEO Sanjay Mehrotra said in the company's June earnings release.
That sentence carries history's uncomfortable note, however. Memory busts have a way of being financed by the boom before them -- high prices paying for new supply until the new supply arrives. And the investment underway now is, by management's own description, at record levels.
With that said, Micron has built defenses this time that earlier cycles lacked. Its multi-year Strategic Customer Agreements lock in commitments years ahead, and management believes they will make its results significantly more durable and predictable.
They may. No previous cycle had them. But agreements can shape how a downturn arrives without preventing one.
History's message here is a modest one, then. Nothing in the record says this boom must end soon (the last two cycles gave little notice either way), and this one is larger, more profitable, and arguably better-defended than any before it.
As of this writing, the stock sits near $972, valuing the company around $1.1 trillion. The market is paying about 22 times earnings for a business it knows is cyclical.
The record, I believe, justifies respect in both directions. Micron has never had a run like this. It has also never held a peak. The swing from fiscal 2022 to fiscal 2023 took back the entire boom and then some, and fiscal 2023 is only three years back.
