Micron Is Sitting In The Catbird Seat

Micron (MU) reports quarterly earnings after hours. Analysts expect revenue of $7.28 billion and eps of $2.74. The revenue estimate implies 7% growth Q/Q. Investors should focus on the following key items.

Gaudy Top Line Growth

A year ago Micron’s operations were characterized by slowing revenue growth an declining gross margins. My biggest fear was that an aggressive Samsung was encroaching on the company’s turf in mobile DRAM, and trying to re-position itself as a supplier for Apple’s (AAPL) iPhones. What a difference a year makes. In the most recent quarter, Micron grew revenue 71% Y/Y. Revenue from the Compute & Networking Business Unit (“CPBNU”) more than doubled, driven by higher sales from the enterprise market.

Micron also benefited from increasing memory for content servers, increasing sales of its GDDR5 and GDDR5X products used for powerful graphics within the gaming industry, and improved pricing in the DRAM market. CPBNU is also the company’s largest operating segment, representing 47% of total revenue. The Storage Business Unit’s (“SBNU”) sales of Trade NAND were up 61% on the strength of cloud SSD and enterprise markets. Meanwhile, the Mobile Business Unit (“MBU”) revenue was up 32% on improved DRAM prices and higher memory content for smartphones, slightly offset by declines in average selling prices (“asp”) for Trade NAND.

Micron Is Sitting In The Catbird Seat

Micron is sitting in the proverbial catbird seat. I have understood Micron’s presence in the mobile and server markets. However, I did not foresee its burgeoning presence in the cloud and gaming segments. The company’s cloud/enterprise customers are driving out-sized memory and storage demand. Everybody from Salesforce (CRM), to Oracle (ORCL), to Microsoft (MSFT) want to have a presence in cloud services.

Technology companies allow clients to interact with customers via mobile devices through the cloud. If more work is performed remotely then the need for memory, security and cloud infrastructure also increases. That puts Micron’s storage capability in the middle of the next wave of explosive growth in the technology space.