Micron Technology, a good barometer of the memory market in everything from PCs to data centers to mobile devices, missed expectations with its second quarter results, but signaled that a bottom may be in place for DRAM and NAND.
Specifically, Micron Technology noted that increasing storage in mobile devices and developments such as foldable phones as well as data center and cloud demand should boost the market in the second half of the year.
Micron said its third quarter earnings will be 85 cents a share compared to estimates of $1.32 a share. Sales for the fiscal third quarter will be $4.8 billion give or take $200 million. Wall Street was looking for third quarter revenue of $5.52 billion.
That outlook came after Micron delivered mixed second quarter results. Earnings of $1.42 a share ($1.71 non-GAAP) on revenue of $5.84 billion, down from $7.35 billion a year ago, topped Wall Street estimates on the bottom line with a miss on the top line.
Overall, Micron is operating efficiently and cutting capacity as customers work through inventory, a PC CPU shortage clears and cloud providers digest equipment purchases.
In the second quarter, every unit with the exception of mobile saw sales declines. Mobile sales in the second quarter were up 3 percent. Most units are in some form of transition. For instance, the storage industry is transitioning to NVMe, there's a server refresh on deck and smartphones are getting more memory in new specs.
Here are a few key takeaways from Micron's second quarter results.
The data center market is expected to rebound in the second half following strong growth for the last two years. Software defined storage may have altered the demand equation somewhat.
Micron CEO Sanjay Mehrotra said:
In the data center markets, the demand for memory has moderated this year, following exceptional growth in the last 2 years. The slowdown in demand is a result of ongoing customer inventory adjustments as well as software optimizations at some cloud customers.
We expect growth to resume in the second half of calendar 2019 as we see improvement in our customers' inventory position. The new server processors that support higher memory densities are expected to be introduced in a few months, which should drive additional demand growth in the second half of calendar 2019.
The mobile market is likely to fuel memory demand. Mehrotra said:
These next-generation premium smartphones will typically feature 8 to 12 gigabytes of DRAM and 256 to 512 gigabytes of NAND versus 4 to 6 gigabytes of DRAM and 64 to 128 gigabytes of NAND in current-generation premium smartphones. These trends will likely cascade to lower-tier phones as well. We believe that 5G foldable phones and upcoming innovations in augmented and virtual reality will drive sustained content growth for years to come and should reignite smartphone unit sales beginning in calendar 2020.
5G and IoT will also spur memory demand. Mehrotra said:
We expect 5G adoption to create increased demand for memory and storage in IoT devices, wireless infrastructure and data centers. Our embedded and networking businesses are already starting to see benefit from early 5G infrastructure investments.
Add it up and Micron said that DRAM pricing was worse than expected in the second quarter for a bevy of reasons including economic uncertainty, but emerging technologies are only going to drive memory demand higher over time.