Micron’s Mixed Reality: AI Strength Collides with Consumer Weakness in FQ1 2025
Key Takeaways
- Record Data Center Performance: Data center revenue grew 400% year-over-year and exceeded 50% of total revenue for the first time, highlighting Micron’s successful pivot toward AI-driven markets. HBM revenue more than doubled sequentially with strong margins, and the company has expanded its customer base with high-volume shipments to a second major customer.
- Near-Term Consumer Market Challenges: The company faces more significant headwinds than anticipated in consumer segments, with elevated inventory levels in PC and smartphone markets. This weakness, combined with softness in NAND pricing, led to disappointing Q2 guidance of $7.9B revenue versus consensus of ~$9B.
- Strategic NAND Adjustments: In response to market conditions, Micron is taking decisive action in its NAND business by reducing wafer production by mid-teens percentage and slowing technology transitions. This represents a significant operational shift to manage supply and demand balance.
- Second Half Recovery Thesis: Management expects conditions to improve by spring 2025, driven by multiple factors including normalized customer inventories, continued AI infrastructure buildout, and potential catalysts like Windows 10 end-of-life in October 2025. The company remains confident in achieving its target of HBM market share matching its overall DRAM share by second half of 2025.
Micron delivered a mixed fiscal Q1 2025, reporting in-line revenue of $8.71B but with concerning guidance for the next quarter that highlights both the opportunities and challenges facing the company. The quarter itself showed strong momentum in AI-related segments, with data center revenue growing 400% year-over-year and representing over 50% of total revenue for the first time, driven by robust demand for high-bandwidth memory (HBM) and data center SSDs.
However, the company guided fiscal Q2 revenue significantly below expectations at $7.9B (versus consensus of ~$9B), driven primarily by weakness in NAND flash memory and inventory corrections in consumer markets like PCs and smartphones. The guidance reflects a bifurcation in Micron’s business – while AI-driven segments remain strong, traditional consumer markets are experiencing softness that is more pronounced than previously anticipated.
The bright spot continues to be Micron’s execution in HBM, where revenue more than doubled sequentially in Q1. The company raised its 2025 HBM market forecast from $25B to $30B and continues to expect the market to grow to over $100B by 2030. Micron’s HBM3E product is now designed into NVIDIA’s next-generation Blackwell B200/GB200 platforms, and the company has begun high-volume shipments to its second major HBM customer with a third starting in Q1 2025. Importantly, HBM gross margins are significantly accretive to both DRAM and overall company margins.
On the challenging side, NAND flash memory is experiencing more significant headwinds than expected, leading Micron to reduce NAND wafer production by mid-teens percentage and slow technology transitions. The company is also seeing lumpy demand in enterprise SSDs after several quarters of rapid growth, though this is viewed as temporary given continued AI infrastructure buildout.
The outlook suggests a tale of two halves for fiscal 2025 – after a challenging Q2, Micron expects customer inventories to normalize by spring, enabling stronger bit shipments in the second half of the year. This recovery thesis is predicated on continued strong AI demand, the ramping of HBM production, and an eventual cyclical recovery in consumer markets potentially driven by AI PC adoption and Windows 10 end-of-life in October 2025.
Management remains confident in achieving their target of reaching HBM market share commensurate with their overall DRAM share by second half of 2025, though analysts note some surprise that this timeline wasn’t pulled forward given strong execution. The company expects to generate “multiple billions” in HBM revenue in fiscal 2025, and maintained their capital expenditure guidance of $14B, with most spending directed toward DRAM and HBM capacity.