Micron gives strong forecast after data centre demand grows

NEW YORK – Micron Technology, the largest US maker of memory semiconductors, gave a strong revenue forecast for the current period, indicating that data centre demand is helping make up for a slowly recovering market for personal computers and smartphones.

Fiscal second-quarter revenue will be US$5.1 billion (S$6.78 billion) to US$5.5 billion, the company said in a statement on Dec 20.

That compares with an average analyst estimate of US$4.99 billion. Excluding certain items, Micron will log a narrower loss than projected by analysts. 

The stock gained about 4 per cent in extended trading following the announcement.

It had been up 57 per cent in 2023 – in line with broader gains for chip equities – driven by investor optimism that an inventory glut is easing.

The outlook signals that Micron is through the worst of an industry-wide slump and moving back towards profitability.

The boom in artificial intelligence spending is helping.

Chief executive Sanjay Mehrotra has pointed to strong demand for the expensive memory used in data centres to help develop AI software.

Mr Mehrotra also repeated his prediction that 2024 will be a rebound year for the industry, setting the stage for record results in 2025.

But the company will wait to boost chip output until prices improve, he said. 

The company has already sold out of all of the high-bandwidth memory that it can make in 2024, Mr Mehrotra said.

That is the type of ultrafast-access chips needed by computers that are creating AI software.

That “high-revenue, high-profit opportunity for the industry” has just got under way, he said. 

Micron is trying to recover from a year of smartphone and PC makers slashing orders.

The customers built up an oversupply of inventory, sending memory prices plummeting below the cost of production.

Micron now expects PC unit volumes to grow by a percentage in the low- to mid-single digits in the 2024 calendar year, following two years of declines.

Smartphone demand also is showing signs of recovery, the company said, and will “grow modestly” in 2024.  

While demand is not roaring back in those areas, customers have at least worked through excess inventory, helping restore the supply-and-demand balance, Mr Mehrotra said.

“It strengthens pricing,” he said.

In the fiscal first quarter, which ended on Nov 30, Micron’s revenue rose 16 per cent to US$4.73 billion.

The Boise, Idaho-based company had a loss of 95 US cents a share, excluding certain items.

That compares with estimated sales of US$4.54 billion and a loss of US$1 a share.

Micron gave a preview of the results late in December, warning that its operating costs have grown.

The report disappointed investors, who sent the shares sliding at the time.

Micron became the largest US maker of memory chips by acquiring rivals and surviving several brutal downturns in the industry.

It competes with South Korea’s Samsung Electronics and SK Hynix in selling the chips, which provide short-term memory in computers and phones.

Micron also makes flash memory, which provides longer-term storage in those devices.

Both types of memory follow industry standards, meaning that parts from different companies are interchangeable and can be traded like commodities.

The downside is that prices can be volatile, and customers can switch from one supplier to another.

Memory chipmakers have been trying to push into new markets, such as data centres, cars and an increasing array of gadgets – making them less dependent on phones and PCs. But they have not become diversified enough to offset the swings in demand from their core markets. BLOOMBERG