Micron: Memory monopoly
Micron is in the happy position of being the only major computer-memory manufacturer to be based in the US, and it is leveraging this opportunity to transform its business away from the boom-and-bust commodity cycle of the past. Its third-quarter results were a blowout way beyond any of Wall Street’s expectations, with net income hitting $28.2bn in the quarter to May 28, up from $1.9bn the previous year, pushing its market capitalisation to $1.3-trillion and briefly overtaking that of Meta.
Micron’s shares have more than trebled in value this year, and it has used its position of strength to lock in 16 multiyear strategic customer agreements that guarantee it a cool $100bn of revenue through 2030.
Customers scrambling to guarantee high-bandwidth memory supply have shovelled $22bn onto Micron’s balance sheet, and it has signed a major design and supply partnership with Anthropic.
The scale of the global supply shortage is such that Micron has been able to charge premiums that have seen its adjusted gross margin balloon to 84.9% in the quarter, up from 39% the previous year.
In his earnings call, Micron CEO Sanjay Mehrotra hinted that the real gravy for the company’s future may not be just in AI data centres, but in the huge demand for memory that is expected to develop as robotics and humanoids come of age. He pointed out that a humanoid robot carries about 10 times as much memory as the average semi-autonomous vehicle, and he expected this immense new demand cycle to start kicking in at the end of this decade.
Rheinmetall: Sinking warships
As the largest defence contractor in Germany and the fifth-biggest arms manufacturer in Europe, you might have expected Rheinmetall to be a major beneficiary of the enormous growth in German military spending in reaction to the invasion of Ukraine.
Its share price initially advanced like the Wehrmacht through Russia in 1941, but since peaking at the end of last year it has suffered a retreat from Moscow all its own, losing around half its value as governments started to rethink what the future of warfare is going to look like.
The latest setback for the company was Germany’s cancellation of a troubled project to build six F126 frigates for its navy, after Rheinmetall’s long-serving CEO, Armin Papperger, had been telling investors all year that the deal was in the bag for Rheinmetall.
The company’s experience lay in tanks, artillery and ammunition, but last year Papperger decided to dip a toe in the water by acquiring Naval Vessels Lürssen for €1.5bn on the expectation that it would take over the F126 project.
Defence minister Boris Pistorius had other ideas, pointing out that the cost of the project had risen from €10bn when it was announced in 2020 to around €18bn today. He said Germany would instead be ordering eight smaller, cheaper frigates from Rheinmetall’s rival, TKMS, that would be in the water more quickly.
The saga has put a major dent into Papperger’s credibility and caused Rheinmetall’s share price to drop by a fifth. The bigger question is: what are drones and autonomous vehicles going to do to the future of traditional manned warships?
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