Micron – the enigmatic stock: Excerpts from 4Q2018 Earnings Call Transcript
Note: With management’s projection of $2.95 EPS for 1Q2019, trailing-twelve-month EPS would be $12.28 – affording Micron with a PE of 3.66, based upon current market value of $45.
The following comments were made by CEO Sanjay Mehrotra during Micron’s 4Q2018 Earnings Call Transcript.
“Now, turning to highlights by market. More than one-third of our total revenues in fiscal 2018 were from data center and graphics. Our annual revenues in these markets have more than doubled year-over-year. We are confident about the long-term demand growth in this market as AI and big data analytics continue to create new value for end customers. Our collaboration with customers in these markets is deep and we work closely with them to bring new technologies to market.
For example, in Q4, we started shipping a new custom persistent memory solution to a large hyperscale company. In graphics, NVIDIA chose us as the lead GDDR6 partner for their GeForce RTX products, and we expect to see strong growth in our GDDR6 shipments in fiscal 2019. We are also collaborating with customers on 3D XPoint solutions and expect to start sampling products in late calendar 2019.
Markets requiring our long lifecycle products make-up more than 15% of our revenues. We win in these markets on high quality, deep partnerships, committed long-term support, and the best of our DRAM, NAND and NOR product portfolios. These businesses in our portfolio typically show higher stability in revenues, profitability and cash flows, and are supported by secular growth drivers such as autonomous driving, networking, IoT and industrial automation.
Our automotive business had record revenues in the quarter. We have a strong design win pipeline for automotive products with a lifetime value of several billion dollars. To support our long-term growth in these markets, we recently announced a multi-year $3 billion investment to expand our fab in Manassas, Virginia, over the next decade. This site will be a world-class center of excellence for developing and manufacturing these long lifecycle solutions.
Turning to mobile. The market continues to grow, driven by content increases for DRAM and NAND across all frontiers. We shipped our first high-performance UFS managed NAND products in the fourth quarter and expect this to be a growth area for us in fiscal 2019. We delivered record results in mobile with revenues up 8% sequentially, driven by strength in NAND as we grew NAND bits 80% quarter-on-quarter. DRAM and NAND content will continue to grow in mobile devices in fiscal 2019, driven by customer preferences and the need to support new camera and digital features, utilizing machine learning.
Looking at the industry broadly. Calendar 2018 has been a phenomenal year so far with the total DRAM and NAND TAM on track to reach record highs, and total industry revenues forecasted to grow 29% year-over-year to $168 billion.
As we discussed at our Investor Day event, we expect industry cyclicality to be more dampened than in the past as industry supply growth from node transitions slows structurally and supply growth requires higher levels of CapEx. In addition, we continue to see robust diversified demand drivers and are confident in the long-term outlook for our business.
Turning to bit growth. In DRAM, we see the calendar 2018 industry bit output growth tracking slightly above 20% with Micron growing in line with the industry. NAND industry bit output growth is tracking close to 45% in calendar 2018, and we expect to grow, roughly in line with the industry.
Looking ahead to calendar 2019, we plan to grow DRAM bits in line with estimated industry growth of approximately 20% and plan to grow NAND bits somewhat above our expectation of industry growth of 35% to 40%.
In fiscal 2019, we expect that DRAM profitability will remain strong as the market continues to benefit from long-term structural growth drivers and from structurally slowing supply growth.
Turning to NAND, we have seen an acceleration in supply growth in calendar 2018, driven by the ramp of highly efficient 64-layer 3D NAND across the industry. Looking ahead, we expect the moderation in supply growth, beginning in the first half of calendar 2019 as the industry transitions to more challenging, 96-layer designs, which provide less benefits node-over-node. We also expect higher demands due to elasticity, resulting in higher SSD adoption and increasing average capacities across multiple end markets.
In our fiscal first quarter, we see some impact to our client compute customers, due to a shortage of CPUs. In addition, there is some limited inventory adjustments underway at a few customers but the end customer demand remains solid.
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