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MarketWatch First Take: Micron’s AI-focused chip won’t help financial results anytime soon

Investors counting on a boost from AI to help Micron Technology Inc. offset any near-term losses in the next quarter or two saw their hopes dashed in a good news/bad news call with Wall Street analysts Wednesday.

Micron MU, +0.40% executives said they expect a net loss in the fiscal first quarter, squashing speculation on Wall Street that its forthcoming AI-focused memory chips will bring some immediate relief to the memory-chip giant. Micron saw revenue drop 40% to $4 billion and a net loss of $1.43 billion in its fiscal fourth quarter, in which it also sold some of its already-written-off inventory, amid the ongoing semiconductor downturn.

“We believe pricing has now bottomed,” Micron Chief Executive Sanjay Mehrotra told analysts.

Investors had been hoping that Micron’s forthcoming memory-chip family, dubbed HBM3 (for high-bandwidth memory), would soon offset falling sales and the loss of about half of its sales in China due to a government ban. As memory-chip sales for both PCs and smartphones slowed down sharply this year, the industry still has excess inventory. Micron said free cash flow was negative-$758 million.

Also read: Can the coming AI boom help Micron outrun the negative impact of China?

“Fiscal 2023 was a challenging year for the memory and storage industry, as the revenue TAM [total available market] reached a multi-year low, resulting in a significant impact to financial performance,” Mehrotra added.

One analyst asked to double check on comments Mehrotra had made in recent weeks about the revenue potential of the HBM3 chip family. Micron said in July that it began letting customers try out its first HBM3 Gen 2 memory chips. This latest design has improvements in design targeted for use in artificial intelligence, and will reduce the training times of large language models like GPT-4 and beyond.

Mehrotra said revenue will begin to rise in early 2024, but implied that the bulk of revenue from the new chips won’t come until later in the year. “We expect revenue to begin in early 2024 and yes, we are very much still on track for meaningful revenue — several hundred million dollars — in our fiscal year 2024,” he said.

Micron also told analysts that it expects another net loss in the first quarter, and that pricing momentum should strengthen in the second half.

“The bull case remains on the AI server side, as HBM helps support a six- to eight-times content boost versus traditional servers,” said Angelo Zino, an analyst at CFRA Research, in a note to clients. But he added that the current slowdown in consumer markets for PCs and smartphones is the drag on Micron right now.

Micron’s shares fell nearly 4% in after-hours trading, as investors looked beyond the next quarter and held out for a rebound in revenue growth — and a return to profits.

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