December 18, 2024
Memory chips maker Micron (NYSE:MU) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 84.3% year on year to $8.71 billion. On the other hand, next quarter’s revenue guidance of $7.9 billion was less impressive, coming in 11.9% below analysts’ estimates. Its non-GAAP profit of $1.79 per share was 1.4% above analysts’ consensus estimates.
Is now the time to buy Micron? Find out in our full research report .
Founded in the basement of a Boise, Idaho dental office in 1978, Micron (NYSE:MU) is a leading provider of memory chips used in thousands of devices across mobile, data centers, industrial, consumer, and automotive markets.
The rapid growth in data generation and the need to support increases in processing power for everything from consumer devices to data center servers are driving the demand for memory chips. From the content delivery networks and edge computing to the cloud, data storage is a key component underpinning the global technology architecture. On top of that, secular growth drivers like machine learning and the boom in media-rich digital content are further accelerating the need for storage. Like all semiconductor segments, memory makers are highly cyclical, driven by supply and demand imbalances and exposure to consumer product cycles.
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Micron grew its sales at a mediocre 7.1% compounded annual growth rate. This was below our standard for the semiconductor sector and is a poor baseline for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Micron’s recent history shows its demand slowed as its annualized revenue growth of 3.5% over the last two years is below its five-year trend.
This quarter, Micron’s year-on-year revenue growth of 84.3% was magnificent, and its $8.71 billion of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 35.6% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 40.3% over the next 12 months, an improvement versus the last two years. This projection is eye-popping for a company of its scale and indicates its newer products and services will catalyze better top-line performance.
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Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Micron’s DIO came in at 148, which is 7 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.
We were impressed by Micron’s strong improvement in inventory levels. We were also happy its adjusted operating income outperformed Wall Street’s estimates. On the other hand, its revenue and EPS guidance for next quarter missed significantly, sending shares lower. Overall, this was a weaker quarter. The stock traded down 13.4% to $89.80 immediately following the results.
So do we think Micron is an attractive buy at the current price? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free .
