Micron Earnings: Difficulty in China Offset by Higher Memory Content in AI; Maintaining Fair Value

Micron Technology reported fiscal third-quarter 2023 results that surpassed our expectations on the top line and for gross margin despite $400 million in inventory write-downs in the quarter. Pricing continues to suffer as customers work through excess inventory and a slowing in bit demand growth despite an increase in total shipments. We expect average selling prices for both DRAM and NAND to be nearing a trough and believe the pricing trend will reverse early in fiscal 2024. Micron faces restrictions in China from the Cyberspace Administration of China as "critical infrastructure operators" in China are prohibited from purchasing Micron products. We view the ban as significant, with a potential headwind to revenue growth of at least 1,000 basis points. Uncertainty is high on the total impact from the ban, and we are encouraged by a pivot to focus on gaining DRAM and NAND share with other customers. Easing the impact from the ban is the growth opportunity in AI servers, which have 6 to 8 times the DRAM content of a regular server and 3 times the amount of NAND content. Furthermore, DDR5 shipments have more than doubled quarter over quarter, and 75% of DRAM on AI servers is DDR5.