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Micron sells off after Q3 guidance fails to signal a meaningful near-term recovery
12:07:20 PM ET, 03/21/2025 - Briefing.com
After initially springing higher on decent earnings and revenue upside in Q2 (Feb), shares of Micron (MU -8%) quickly reversed course and sold off. The memory chip maker's guidance is driving today's downbeat reaction. MU guided to Q3 (May) adjusted EPS of $1.47-1.67, in-line with consensus, and revs of $8.6-9.0 bln, which was higher than consensus. While the guidance was decent, far better than the soft outlook MU provided in December, it ultimately did not signify a meaningful change in trend.
Recall last quarter, MU commented that consumer-oriented markets were weak, likely staying this way through Q2. However, management anticipated a return to growth during the back half of FY25 (Aug). As such, the market was looking for signs of this trend. At the midpoint of its Q3 revenue guidance, MU is targeting a 29% increase yr/yr, a further deceleration from the 38% jump posted in Q2, not much of a significant rebound. Given the bubbling macroeconomic uncertainty, which can cloud the timing of a recovery across the consumer electronics market, this guidance is not providing any relief today.
There were several silver linings from Q2 worth mentioning. Data center DRAM revs reached a new record. High bandwidth memory, or HBM (vital in AI workloads), surged by over 50% sequentially to a new milestone of over $1.0 bln in revs. MU commented that its HBM shipments were ahead of schedule. As a result, revs of $8.05 bln landed near the high end of MU's $7.7-8.1 bln guidance in Q2. AI remains a powerful driver of overall demand at MU. Major hyperscalers (Amazon, Microsoft, Google, etc.) reiterated substantial yr/yr capital investment growth earlier this year for 2025, creating a sturdy foundation for MU. The company expects mid-single-digit server unit growth in 2025, supported by traditional and AI servers. On that note, MU increased its HBM TAM estimate by $5 bln from last quarter to now exceed $35 bln. However, speaking of HBM, a possible threat looms in the distance. MU competes against two main DRAM suppliers, one of which is Samsung (SSNLF). Currently, MU is qualified as a supplier of HBM, alongside its other competitor SK Hynix, for NVIDIA's (NVDA) GB300, its highest-performing AI system for enterprises. If Samsung is qualified, it could significantly disrupt MU's position in this market. Meanwhile, MU's other segments are facing a weak economy. In PC, MU is still confident that the market will grow by mid-single digits in 2025, with growth weighted to the back half of CY25 due to the Windows 10 end-of-life in October. In mobile, MU's projections for volume growth in 2025 stayed at a low-single-digit percentage but was optimistic about ongoing AI adoption fueling increased DRAM demand. Lastly, in industrial and automotive, customers are in the later stages of inventory adjustments.