Micron's Loss Guidance Overshadows Better-Than-Expected Results

On Wednesday, Micron Technology Inc MU guided for a wider than expected first-quarter loss that triggered concerns of a sluggish recovery in data centers market, causing its shares to drop 2.4%. As it prepares to ramp up production of new product lines, Micron also revealed it is working to become a supplier to Nvidia Corporation NVDA but even its better-than-expected results were overshadowed by the first quarter loss forecast and a later than anticipated return to a positive gross margin, sending its shares down about 5% in premarket trading on Thursday.

Nvidia Could Support Micron’s Recovery

Increasing demand for high-bandwidth memory chips for AI use, a market that is led by SK Hynix who supplies Nvidia has raised hopes of Micron weathering a slow recovery in other end markets. Micron further sparked this hope by announcing a supply deal with Nvidia that is dominating the field as its chips became crucial for AI development and fueled its stock to rise 187% year to date. The AI market is estimated to be worth $137 billion and expected to expand at a compound annual growth rate of 37% through the end of the decade and Nvidia holds a majority market share in GPUs, graphics processing units that are necessary for AI development. Nvidia is the place for powerful hardware that powers AI with Advanced Micro Devices AMD and Intel Corporation INTC far behind in their offerings despite their efforts to catch up. During its second quarter that ended in July, Nvidia reported a 101% YoY revenue rise fueled by a 171% expansion in data center revenue. Moreover, Nvidia is expected to deliver even bigger gains in the undergoing quarter as supply challenges got resolved more quickly than anticipated.

Fiscal Fourth Quarter Highlights

Micron reported fourth quarter revenue of $4.01 billion, topping Street estimates of $3.91 billion but still marking a 40% drop due to the "security review" by China's Cyberspace Administration. It also posted a narrower-than-expected loss as non-GAAP loss for the quarter that ended in August amounted to $1.07 per share.

A Mixed Guidance

For the undergoing quarter, Micron expects adjusted revenue to be approximately $4.40 billion, plus or minus $200 million, topping LSEG, formerly known as Refinitiv, estimates of $4.20 billion. But the adjusted loss per share has been guided at $1.07 which is worse than 95 cents that LSEG gathered analysts estimated.

However, during the conference call, Micron Chief Executive Sanjay Mehrotra emphasized that next year’s revenue will be getting a ‘several hundred million’ influx from the company’s new high-bandwidth chips. However, the market didn’t forgive Micron for expecting a positive gross margin in the second half of fiscal 2024 as Wall Street was expecting its return during the first half. But as Sumit Sadana, Micron Chief Business Officer, put it, Micron simply made a bet on higher-performing chips and it needs to wait till next year for them to start paying off.

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