Micron: "The east wind" is not far away, but waiting for it is at risk

$Micron Tech(MU.US) released its fiscal year 2025 second-quarter financial report (ending February 2025) after the US stock market closed on March 21, 2025, Beijing time. The key points are as follows:

1. Key Point: Recovery is quite good. As a priority, the guidance for the next quarter (March to May 2025) is revenue of $8.8 billion, with a fluctuation of $200 million; this corresponds to a quarter-on-quarter growth of around 9%, exceeding the market's average expected recovery of 7%. However, Dolphin Research noted that some leading outsiders have already raised the quarter-on-quarter rebound to over 10% in their latest reports.

2. Key Point: Gross margin guidance is a bit weak. Although HBM is in a period of low shipments, since February, the prices of DDR4 and DDR5 memory have rebounded, and the market originally thought this could offset some of the gross margin declines. However, the company's guidance is 36.5%, with a one percentage point fluctuation, and the midpoint of the guidance is slightly lower than expected.

The company mentioned in a small-scale communication meeting in February that the gross margin in the third quarter would drop by a few hundred basis points (a few hundred bps). This is mainly due to the increased proportion of consumer products, which are still at relatively low prices, while the NAND market conditions are poor. However, after the third quarter, the industry is expected to recover, and gross margins will continue to improve.

3. Overall Performance: After lowering market expectations, actual revenue was $8.1 billion, slightly exceeding the expected $7.9 billion; however, the gross margin was weak due to the lack of HBM shipments in the first quarter, and the prices of DDR and NAND were at low points in December and January.

4. HBM's DRAM also experienced negative quarter-on-quarter growth: As the main revenue driver accounting for over 75%, DRAM business revenue declined by 4% quarter-on-quarter to $6.1 billion, almost completely in line with market expectations. In DRAM, HBM used in AI servers contributed over $1 billion in revenue for the quarter, with a quarter-on-quarter growth of over 50%, and the shipment pace of HBM exceeded our expectations.

In addition to HBM used in GPUs, traditional servers' high-performance D5 and low-power DRAM are expected to generate tens of billions of dollars in revenue in fiscal year 2025.

5. By segmenting revenue from different business units, it is clear why gross margins weakened: The computing and networking business, which is climbing towards 60% of revenue, surged by 46% quarter-on-quarter in the first fiscal quarter but only increased by 4% this quarter.

6. Operating profit declined significantly: Due to high R&D expenses for new product development, there was no quarter-on-quarter decline as the market expected, while marketing and management expenses remained stable, all exceeding market expectations, resulting in operating profit being significantly below market expectations.

However, it should be noted that under the current expectations of an explosion in AI cloud-side and endpoint hardware, the certainty of demand for HBM and DDR is relatively high. While promoting the iteration of HBM products, there are no overly high demands on the expenditure side.

Dolphin Research Insights:

The most, most, most important indicators for Micron at this stage are still revenue and gross margin trends. Among them, revenue growth, especially the ramp-up speed of HBM, is even more crucial.

However, the issue here is that at Micron, the HBM capacity has already been fully booked, and the remaining time in 2025 will be about ramping up and releasing capacity.

Currently, the overall pace is smooth, even exceeding the company's expectations, which is a good thing. However, from the supply-side logic at present, there is no flexibility from the perspective of HBM revenue.

Therefore, the two main factors that are likely to drive its stock price are:

a. What are the supply and demand expectations for HBM after 2026? Can it continue to follow the supply-side-driven logic? For instance, will Samsung be able to supply NVIDIA by then? At the same time, the emergence of technologies like Deep Seek may lower the hardware configuration requirements for AI on the end side, which could significantly disturb the certainty of HBM.

It should be noted that in the line of AI memory investment: unlike the monopoly logic of NVIDIA and TSMC, HBM is more about supply-demand mismatch logic, and the monopoly logic is quite different. In this case, Micron essentially remains a "cyclical stock" logic, and its business quality will be much worse than that of NVIDIA and TSMC.

b. Can end-side AI hardware penetrates quickly? Will it drive up DDR demand and push DDR prices higher? The company's current shipment expectations for the computer and mobile phone markets are still in the mid-single-digit growth range, which does not seem to reflect a very optimistic outlook.

As a cyclical stock, the good thing at present is that Micron has the incremental market of HBM and the opportunity brought by AI end-side applications to increase the memory/storage value per device during this upward cycle.

However, in the very short term, from a timing perspective, by May of this quarter, although the company's guidance has exceeded expectations, the sequential growth rate should still be in Micron's relatively "quiet" season.

In the second half of the 2025 calendar year, as the AI upgrade story gains momentum and HBM follows the GB system for large-scale shipments, Micron's highlight moment will truly arrive.

Overall, Dolphin believes that with the high prosperity cycle approaching, if Micron experiences a significant pullback, it may indicate a good entry opportunity.

Currently, from a valuation perspective, a PE of 20X for the fiscal year 2025 is at a slightly mid-point valuation position in the upward cycle. The second half of the year is certain, but it is advisable to look for a more comfortable price to enter.

1. Below is the core information from the company's management regarding HBM and related markets:

1. HBM Core Information: Emphasizing the TAM Story.

a. The market size expectation for HBM has been raised again: The market size expectation for HBM in 2025 has been raised to USD 35 billion, and by the fourth quarter of 2025, Micron's market share will rise along with its capacity market share. The HBM capacity for 2025 has already been fully sold out. Now let's talk about the orders for 2026.

b. In terms of HBM capacity classification, the proportion of HBM3E 12H capacity is higher, and it has already started mass production. In the second half of the 2025 calendar year, HBM3E 12H (mainly assembled in GB 300) will be the main product shipped, while HBM3E 8H (installed in GB 200) will serve as a supplementary product.

c. HBM revenue expectations: In February, the quarter has already begun bulk shipments to a third customer, and new customers will come in later. In the fiscal year 2025, HBM is expected to generate "multi-billion" dollars in revenue.

d. Product progress: HBM4 will be released in the 2026 calendar year, with a 60% increase in bandwidth compared to HBM3.

2. NAND: Some data center short-term customers are still clearing inventory, and we may see an increase in shipment volume in the coming months.

3. Computer market: It is estimated to have single-digit growth in the 2025 calendar year, with more growth expected in the second half of the year, mainly due to the retirement of Windows 10 in October, which may stimulate interest in upgrading to AI PCs. The minimum memory for AI PCs is at least 16GB, while the average is currently around 12 GB.

4. Mobile phone market: The main hope is also in AI, as AI smartphones generally require at least 12GB of internal memory, while last year's smartphones typically had 8GB of memory.

5. In 2025, DRAM shipment volume is expected to be in the mid-to-high double digits, while NAND is in the low single-digit growth range. In the long term, both should be around 15%.

6. Micron's DRAM and NAND production growth in the 2025 calendar year will be lower than industry demand growth, and inventory days will decrease; however, market share in sales will remain stable.

II. Key charts, attached for reference: