Shares of the computer memory chipmaker Micron Technology Inc. moved higher in extended trading today after its chief executive said the market appears to have bottomed out, following better-than-expected quarterly results.

The company reported a third quarter loss of $1.9 billion, reversing quite dramatically from the $2.63 billion profit it posted in the year-ago period. Losses before certain costs such as stock compensation came to $1.43 per share, while revenue fell to $3.75 billion from $8.64 billion one year ago. The results reflect a dramatic reversal of fortunes in the memory chip market, which was booming one year earlier because of COVID pandemic-related shortages, only to fall victim to a supply glut this year.

Nevertheless, Micron’s numbers did beat Wall Street’s expectations, with analysts forecasting an even bigger loss of $1.61 per share on lower sales of $3.65 billion. Investors liked the results, as they bid up the stock by more than 3% after-hours.

In a statement, Micron President and Chief Executive Sanjay Mehrotra (pictured) stated his belief that the memory industry has now passed its trough in revenue, and expects margins to improve in future quarters as supply-demand balance gradually restores itself. “Longer-term, Micron’s technology leadership, product portfolio and operational excellence continues to strengthen our competitive positioning across diverse growth markets, including AI and memory-centric computing,” he added.

Despite saying the market has already bottomed out, Micron could only offer mixed guidance for its fiscal fourth quarter. It said it’s expecting a loss of between $1.12 and $1.26 per share on sales of between $3.7 billion and $4.1 billion. That compares with Wall Street’s expectation of a loss of $1.07 per share on sales of $3.88 billion.

On a conference call, Mehrotra told analysts that the company is expecting to see a considerable boost in its sales as a result of the growing interest in artificial intelligence workloads. However, those gains will be offset by slowing sales in the personal computer, smartphone and server markets, which are looking “worse than feared,” he admitted. However, he reiterated his earlier statement that supply reductions in the market are beginning to ease, bringing more stability.

Micron Chief Financial Officer Mark Murphy said the company took a $400 million hit relating to inventory write-downs in the third quarter, contributing to negative gross margins of 16%. That’s an improvement of 15 percentage points sequentially, he pointed out. During the second quarter, when Micron reported its biggest-ever quarterly loss, the company reported a $1.4 billion charge relating to inventory.

Micron makes two kinds of memory chips — dynamic random-access memory, which is used in PCs and servers, and NAND flash, which is used in smaller devices such as smartphones and USB drives. Prices of those chips rose during the COVID pandemic as manufacturing operations were hit by shutdowns, only for big companies to overbuy large stocks when they became available later, resulting in a glut that cratered the market.

For Micron, the good news is that memory chips are a key component of AI servers, which are suddenly in big demand amid the surge of interest in generative AI chatbots such as ChatGPT.

“AI servers have six to eight times the DRAM content of a regular server and three times the NAND content,” Mehrotra said on the call. “In fact, some customers are deploying AI compute capability with substantially higher memory content.”

Jim Handy, an analyst with Objective Analysis, told SiliconANGLE that for all the talk about AI, it’s the more mundane server and PC markets that will make or break Micron’s fortunes. “Micron’s management talks up AI, as well they should, but today’s AI demand is not significant enough to make the issues that impact Nvidia hit Micron anywhere near as hard,” he said.

On the other hand, Handy did agree with Mehrotra’s assessment that the memory market appears to have bottomed out. “Prices have collapsed to the point where they have reached cost, and they won’t decline any faster than cost reductions,” he explained. “As long as bit growth is higher than cost reductions, which is the normal state of the market at this point, then Micron’s revenues will slowly rise.”

Holger Mueller of Constellation Research Inc. said Micron is still suffering badly from the current lull in global semiconductors, but he drew a few positives from today’s earnings call. For one thing, Micron managed to grow its revenue again on a sequential basis, and it’s likely that AI demand is going to help drive further revenue gains in the second half of the year, he said.

“Really, Micron’s management deserves some kudos for showing excellent cost discipline over the last couple of years, especially when its revenues were booming due to COVID supply issues,” Mueller added. “It has shown good fortitude to keep its cost structure more or less the same during these tougher times, while still spending a good amount on R&D, the most important investment for Micron shareholders and customers alike.”

Although Micron is expecting to be boosted by AI-driven sales, its recovery will be hindered by a recent order from the Chinese government that prohibits operators of key infrastructure from buying its products. Mehrotra admitted that the order is a “significant headwind that is impacting our outlook and slowing our recovery.”

Despite Mehrotra’s warning, Handy said the reality of the memory chip market is that the world is supplied by just three major DRAM manufacturers, meaning Micron could well earn a reprieve. “It’s terribly difficult for Chinese manufacturers to avoid using any of these three providers,” Handy said. “China’s government must be careful not to cut off its nose to spite its face, and I anticipate that Micron will be allowed to continue shipping products to customers in China with only minor restrictions.”

Charles King of Pund-IT Inc. told SiliconANGLE that the effects of the ban on Micron’s products may well be muted anyway, as U.S. President Joe Biden is now considering implementing further restrictions on the sale of AI chips to China. “Shares of Nvidia and other AI-related players fell today on that news,” King stated. “Whatever hits Micron may suffer in that regard have likely already taken place.”

Looking further afield, Mehrotra said the company is expecting to see a “record total addressable market” in calendar year 2025, and a return to “normalized levels of profitability.”

Photo: SiliconANGLE