MU Earnings: Sold Out Capacity, Record Sales... Why We're Cautious.

Key takeaways

Micron reported a record revenue of $13.6 billion, with capacity sold out through 2026.
Adjusted free cash flow is influenced by external incentives and capital expenditures, impacting profitability assessments.
The semiconductor industry is cyclical; a cautious approach is advised for expectations beyond 2026.
Micron is exiting its direct-to-consumer segment but continues to support business relationships with manufacturers.

Summary

Micron's Record Quarter and Capacity Constraints

Micron recently reported a record-breaking quarter with $13.6 billion in revenue, fully booking its capacity through 2026. The discussion highlights their impressive growth, including a forecast of a 132% year-over-year revenue increase for Q2 2026. Despite these successes, the implications of capacity constraints due to significant capital expenditures are noted.

Financial Metrics and Adjusted Free Cash Flow

The hosts delve into the financial metrics that should be considered when evaluating Micron, emphasizing the significance of adjusted free cash flow. They clarify that while Micron showcased strong sales and earnings growth, the adjustment includes incentives from the US Chips Act, adding complexity to profitability evaluation during a period of high capital expenditure.

Cyclical Nature of the Semiconductor Industry

The episode discusses the cyclical nature of the semiconductor industry and cautions listeners regarding future expectations. Despite a strong performance, there’s a mention of a potential slowdown in growth rates beyond 2026, leading to a more cautious approach to valuation.

Clarification on Product Lines and Market Strategy

A key point of clarification is made regarding Micron's decision to exit its direct-to-consumer memory unit under the Crucial brand, which has caused some misunderstanding. The hosts explain that Micron will still supply memory to PC and smartphone manufacturers, assuring listeners that the overall business remains strong.

Show notes

Micron just reported a record-breaking quarter with $13.6 billion in revenue and confirmed that their capacity is fully booked through 2026. We analyze the company's impressive sequential growth and the Q2 outlook which implies a 132% year-over-year revenue increase. Additionally, we clarify the misunderstanding regarding the company's decision to exit its direct-to-consumer memory unit versus its ongoing sales to PC and smartphone manufacturers.

Despite the strong performance, we remain prudent regarding valuation and the cyclical nature of the industry. We break down the adjusted free cash flow metric, which adds back Chips Act incentives , and discuss how significant capital expenditures for equipment are impacting profitability.

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