Micron sees long-term growth driven by cars and cloud

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Micron

The technology expects long-term revenue percentage growth in the single digits and higher than the entire semiconductor industry, the memory chip company said Thursday.

Micron (ticker: MU) told investors and analysts at a meeting in San Francisco that it expects strong growth for DRAM and NAND memory chips in the coming years. It will be driven in particular by growing demand from the automotive, data center and industrial end markets, reducing the company’s dependence on the PC and smartphone markets.

Micron CEO Sanjay Mehrotra said in a presentation that the company expects slight growth in the mid-to-high teens for DRAM, and in the twenties for NAND on a year-over-year basis through 2025. The overall memory industry is expected to reach $330 billion by 2030, from $161 billion in 2021, he said. The CEO added that memory chips now make up 30% of the chip industry, up from 10% at the turn of the century.

Micron also announced a 15% increase in the quarterly dividend to 11.5 cents per share. This is Micron’s first ever dividend hike – the company first established a dividend policy in August 2021. Micron noted that it continues to aggressively buy back stock, including $700 million for the current term, which ends in May. The company plans to continue repurchasing shares at current levels.

The company’s recently unveiled long-term financial model projects operating margins in the 30% range; Ebitda (earnings before interest, tax, depreciation and amortization) margins in the low 50s range; capital expenditures in the mid-1930s as a percentage of sales; and a free cash flow margin above 10%. These target ranges span all business cycles, with some variation over time.

“Our ambition is to capture growth ahead of this business, in a way that balances return on capital and cash returns,” said Mark Murphy, who joined the company as chief financial officer a few years ago. barely weeks.

At the meeting, Micron argued that it holds a technology leadership position in both NAND and DRAM, while noting that demand is robust and diversifying.

Micron is a clear winner in the wider technology industry’s adoption of cloud computing. Micron said the data center market for memory was $50 billion in calendar year 2021. The company forecasts 28% annualized bit growth for DRAM used in data center applications. through 2025, with 33% growth in NAND demand.

The automotive market was smaller last year at $4 billion, but the company forecasts 40% growth in automotive DRAM bit demand through 2025, with 49% growth in NAND demand . The company notes that memory demand increases dramatically as cars add more range – fully self-driving cars are expected to require 30 times the DRAM content and 100 times the NAND content as a single-driver vehicle. Micron also expects strong growth in the NAND and DRAM used in connection with every data center server.

Micron chief commercial officer Sumit Sadana told the meeting that the company’s reduced reliance on the PC and mobile phone markets should translate into higher growth and more stable financial performance. It expects the PC and mobile sector to account for 38% of overall revenue in fiscal 2025, up from 55% in fiscal 2021. The data center focus rises from 30% to 42%, and the automotive, industrial, and networking markets will together reach 20% of revenue, up from 15% previously.

Micron is also experimenting with entering into forward pricing agreements with customers. Sadana sees benefits for both Micron and customers: “Customers benefit from guaranteed supply and preferential allocation when supply is tight, and guaranteed price reductions by following the cost curve to the bottom.” Micron said it signed its first forward pricing agreement with a top 10 customer, with a three-plus-year deal worth more than $500 million a year.

Amid continued widespread pressure on tech stocks, shares of Micron recently fell 1.3% to $66.06. The title is down 29% since the start of the year.

Write to Eric J. Savitz at eric.savitz@barrons.com

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