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Micron's (MU) Earnings Call Highlights: Cloud Computing, AI, & Secular Growth

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Shares of Micron (MU - Free Report) opened higher Thursday, one day after the company posted strong quarterly financial results. But while some investors assess the basics of the Wall Street superstar’s top and bottom line expansion and guidance, let’s take a look at some of the most important things we learned from Micron’s earnings call, from cloud computing growth to artificial intelligence.

Micron’s CFO Dave Zinsner painted a simple picture that will help every investor understand some basics about Micron’s current financial picture and outlook. “We are on the strongest financial footing in the company's 40-year history, allowing us to make investments that will capitalize on the secular growth trends driven by the data economy,” Zinsner said on the company’s Q3 earnings call (also read: Micron Posts Earnings Beat, Ends Q3 Net Cash Positive).

“Our focus on growing high-value solutions, including managed NAND and low power DRAM products for the mobile market, SSDs for the cloud market, as well as graphics DRAM, drove our fiscal third-quarter results. We also saw the benefit of strong execution on technology transitions.”

Before we dive into more of the details, it’s helpful to understand the overall premise here: the data-driven economy requires more memory and data storage capabilities than ever before, and these trends are more secular than cyclical at the moment.

Cloud

Micron noted that data centers once again helped drive growth and demand for its DRAM and NAND solutions. Meanwhile, the chip maker’s DRAM and NAND revenue from cloud computing customers jumped sequentially by 33% and 24%, respectively.

Cloud capital expenditures are projected to reach $108 billion by 2021, up from $50 billion this year, according to analysts. And Micron is slowly grabbing a larger share of this market. “When you look at our total share of the DRAM industry and you look at cloud, we used to be underrepresented but with strengthening execution, our share has increased and is in line with rest of the overall DRAM industry share,” CEO Sanjay Mehrotra said on the conference call.

Micron has also slowly ramped up its SSD solutions built on its 64-layer 3D NAND, looking to attract consumer and cloud customers. Meanwhile, the company noted that its transition to 64-layer SSDs will help bring its costs down. Overall, the company noted that a significant portion of the cloud markets growth will be concentrated in the compute and storage sector as well as memory, which is right in Micron’s wheelhouse.

Artificial Intelligence

The AI revolution has barely begun, and it truly has the power to change the world. Therefore, investors want to invest in companies that are set to play a large role in AI. Micron noted AI is “absolutely driving more and more demand,” with more and more devices and cloud computing relying more heavily on AI.

Micron CEO noted that AI training driven compute workloads require 2x the amount of DNAM and 6x the amount of SSD. “So AI applications are driving growth in the data center as well as through more intelligent devices on the edge,” Mehrotra said. “Smartphones certainly with features such as AR and VR and AI getting implemented into these phones, along with the high-resolution cameras, they require more and more DRAM as well.”

Secular

For years, investors have grown accustomed to cyclical trends in technology and the semiconductors industry. But Micron’s CEO made it clear throughout the earnings call that the current trends in cloud computing, AI, data storage, and nearly everything else “are really secular in nature.”

“Growing capabilities in the data center has enabled greater functionality at the edge, increasing users, and creating more data,” Mehrotra said. “We believe this virtuous cycle has driven the secular growth patterns we are currently seeing across nearly all of our markets and believe that this will persist into the foreseeable future.

Looking Ahead

Investors can see that Micron feels it is in a strong position to capitalize on the growth of memory and data storage. But they should also be aware of what chips the company has coming down its pipeline. The company noted that it expects production shipments of its 96 layer 3D NAND at some point in the second half of 2018. Micron is also ready to start production shipments on its 1Y technology and reach bit crossover on its 1X tech later this year.

The company’s new 3D XPoint technology, which it is developing in partnership with Intel (INTC - Free Report) , will also be key going forward. “We are excited about the potential for 3D XPoint technology to create a new tier of memory and storage between DRAM and NAND flash with a main focus on our 3D XPoint product development and are on track to introduce our first products in later calendar 2019 with meaningful revenue in 2020,” Micron’s CEO said.

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