Tag Data Centers/Colocation Services

Micron shows how the cloud is saving chip makers


Memory-chip maker Micron Technology Inc. was saved by a boom in data centers, adding to chip makers’ growth as the pandemic forces more companies to expand their cloud computing capabilities.

On Monday, Micron
MU,
+1.35%

reported better-than-expected fiscal second-quarter earnings and had a stronger outlook for the next quarter, despite some issues with the global supply chain due to the COVID-19 pandemic. Micron’s shares jumped nearly 6% in after-hours trading. At Monday’s close, Micron was trading at $49.15, down 8.62% for the year but a huge recovery from its plunge in March, when it hit a low of $31.13 in the early days of the pandemic.

“We continue to see healthy demand trend in cloud in the second half of the year,” Micron Chief Executive Sanjay Mehrotra told analysts on a conference call. “Cloud is still actually in early innings, and long-term trends for cloud are strong.” In the second quarter, the company said that the work-from-home economy, e-commerce and videogame streaming all drove a strong surge in demand for more cloud-computing capabilities.

Micron’s comments echo those that other chip giants, such as Intel Corp.
INTC,
+1.33%

and Nvidia Corp.
NVDA,
+0.49%

NVDA,
+0.49%
,
made last quarter. On Monday, Xilinx Inc.
XLNX,
+1.03%

joined the crowd when it updated its guidance for its fiscal first quarter, noting that strong performance in wireless and data center were offsetting weakness in consumer segments.

In the second half of the year, Micron said that it expects demand for consumer technology products such as PCs and smartphones to improve. That’s in part due to the ongoing rollout of 5G networks, which will drive demand of new smartphones that have more dynamic random access memory (DRAM) chips, compared to 4G-network phones. The company said that average selling prices of both DRAM chips and NAND flash memory were up sequentially from the previous quarter.

One issue hovering over the company, and indeed most chip makers, is the growing rise in inventories, both by Micron and its customers, especially in the smartphone market. When asked by an analyst about the growing inventories, Mehrotra said its customers are trying to prepare for when consumer demand returns.

“Customers want to be prepared to supply the smartphone demand” when it returns, he said. “So, overall, you know, it’s a mixed picture with respect to the inventory on the customer front. Cloud inventories are in decent shape,” while mobile inventories are “somewhat in anticipation of demand.”

NVDA,
+0.49%

The chip industry has been amazingly resilient during the coronavirus pandemic, and most of the demand is due to data centers and the demand for more cloud computing. If the PC and smartphone markets return to growth, there could be even more upside for chip makers such as Micron. But for now, the sure thing is centered around the data center.



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Nvidia data-center sales top $1 billion for first time, earnings beat expectations


Nvidia Corp.’s data-center sales topped $1 billion for the first time at the start of 2020 as the company beat expectations for earnings and sales, but shares were sluggish in late trading Thursday following nearly a week of record closes.

Nvidia
NVDA,
-2.17%

reported first-quarter net income of $917 million, or $1.47 a share, compared with $394 million, or 64 cents a share, in the year-ago period. Adjusted earnings were $1.80 a share, compared with 88 cents a share in the year-ago period. Revenue rose to $3.08 billion from $2.22 billion in the year-ago quarter.

Analysts surveyed by FactSet had forecast earnings of $1.65 a share on revenue of $2.97 billion. Nvidia had forecast revenue of $2.94 billion to $3.06 billion, which had factored in a $100 million headwind from the COVID-19 pandemic.

Shares shifted between slight gains and losses, and were last down 1% in after-hours trading, following a 2.2% decline in the regular session to close at $351.01. Thursday’s regular session was the first decline for Nvidia’s stock after a run of four consecutive closes at record highs.

Business in the Age of COVID-19: Nvidia should dodge coronavirus effects thanks to data centers and videogames

Nvidia’s two largest segments are chips for gaming and data centers, both of which seem safe from negative effects from the coronavirus pandemic after emerging from a year of struggle at the end of 2019. Data-center operators continue to push new chips into their servers to increase machine-learning capabilities for cloud customers and their own usage, while videogames have enjoyed a strong surge amid shelter-in-place requirements.

Nvidia launched new data-center products like its A100 graphics-processing unit last week as part of its annual GTC event, introducing a new architecture for its GPUs, dubbed Ampere. Chief Executive Jensen Huang said then that the new chips were already being shipped to customers, including the largest cloud-computing offerings such as Amazon.com Inc.’s
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-2.05%

Amazon Web Services, Microsoft Corp.’s
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-1.20%

Azure and Alphabet Inc.’s
GOOGL,
-0.17%

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-0.27%

Google Cloud.

For more: Nvidia unveils Ampere GPU architecture for AI boost, and the first target is coronavirus

Nvidia reported gaming revenue of $1.34 billion, up from $1.06 billion in the year-ago period. Data center revenue came in at $1.14 billion, the first time the segment has cleared $1 billion in sales. That’s up from $634 million a year ago. Analysts had expected a 24% rise in gaming sales to $1.3 billion from a year ago, and a 62% surge in data-center sales to $1.03 billion.

“Cloud is a $100 billion market segment of IT today, growing at 40% into a $1 trillion opportunity,” said Jensen Huang, Nvidia founder and chief executive, on a conference call. “Cloud computing is the single largest IT industry transformation that we have ever seen. The two forces that are really driving our data-center business are AI and Cloud computing. We’re perfectly positioned to benefit from these two powerful forces.”

Nvidia expects second-quarter revenue of $3.58 billion to $3.72 billion, while analysts had forecast revenue of $3.25 billion.

Patrick Moorhead, principal analyst at Moor Insights & Strategy, called the quarter “phenomenal” given the pandemic.

“The A100 data-center training/inference product appears to be off on a rocket-ship start, a very good sign,” said Moorhead in emailed comments. “Gaming and workstation growth are directly tied to competitive products and the need to work, govern and school from home.”

Nvidia shares are up 49% for the year. In comparison, the PHLX Semiconductor Index
SOX,
-2.70%

is down 3% in 2020, the S&P 500 index
SPX,
-0.77%

is down 9%, and the tech-heavy Nasdaq Composite Index
COMP,
-0.96%

is up nearly 4%.

Of the 40 analysts who cover Nvidia, 32 have buy or overweight ratings, five have hold ratings, and three have sell ratings, along with an average price target of $325.18, according to FactSet data.



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