Micron (MU) reports quarterly earnings after hours. Analysts expect revenue of $7.28 billion and eps of $2.74. The revenue estimate implies 7% growth Q/Q. Investors should focus on the following key items.

Gaudy Top Line Growth

A year ago Micron's operations were characterized by slowing revenue growth an declining gross margins. My biggest fear was that an aggressive Samsung was encroaching on the company's turf in mobile DRAM, and trying to re-position itself as a supplier for Apple's (AAPL) iPhones. What a difference a year makes. In the most recent quarter, Micron grew revenue 71% Y/Y. Revenue from the Compute & Networking Business Unit ("CPBNU") more than doubled, driven by higher sales from the enterprise market.

Micron also benefited from increasing memory for content servers, increasing sales of its GDDR5 and GDDR5X products used for powerful graphics within the gaming industry, and improved pricing in the DRAM market. CPBNU is also the company's largest operating segment, representing 47% of total revenue. The Storage Business Unit's ("SBNU") sales of Trade NAND were up 61% on the strength of cloud SSD and enterprise markets. Meanwhile, the Mobile Business Unit ("MBU") revenue was up 32% on improved DRAM prices and higher memory content for smartphones, slightly offset by declines in average selling prices ("asp") for Trade NAND.

Micron Is Sitting In The Catbird Seat

Micron is sitting in the proverbial catbird seat. I have understood Micron's presence in the mobile and server markets. However, I did not foresee its burgeoning presence in the cloud and gaming segments. The company's cloud/enterprise customers are driving out-sized memory and storage demand. Everybody from Salesforce (CRM), to Oracle (ORCL), to Microsoft (MSFT) want to have a presence in cloud services.

Technology companies allow clients to interact with customers via mobile devices through the cloud. If more work is performed remotely then the need for memory, security and cloud infrastructure also increases. That puts Micron's storage capability in the middle of the next wave of explosive growth in the technology space.

There is also a growing demand for graphics products. eSports are a hybrid of sport and gaming, where a team or a single player competes in tournaments across various disciplines. According to Newzoo, the eSports industry was expected to generate 2017 revenue of over $100 billion, growing annually in the high single-digits. Cryptocurrency could also spur demand outside of graphics. Micron is poised to provide memory products or both eSports, cryptocurrency and the cloud. The potential upside in these markets is exciting.

Will The DRAM Market Hold Up?

As the company's revenues have exploded its margins have also increased due to a higher scale. Gross margins were 55% in Q1 2018 versus 25% in the year-earlier period. Increased margins amplified the impact of explosive revenue growth. On a product basis, DRAM was 67% of Micron's total revenue. DRAM revenue was up 88% Y/Y, representing explosive demand and positive pricing power. Bit demand increased Y/Y in the mid-20% range while asp was up in the mid-50% range.

A large part of Micron's fortunes are dependent upon the direction of DRAM prices. Micron has experienced extreme volatility in DRAM prices over the past few years. Per the company's most recent quarterly statement DRAM prices declined 35% from 2015 to 2016 and rebounded by 19% from 2016 to 2017. The question remains, "Will DRAM prices hold up?" Per DRAMeXchange, DRAM prices for the first calendar quarter of 2018 are expected to increase sequentially by low single-digits. Micron has an excellent management team that has always been upfront with investors on supply and demand for memory.  Management's estimates of future DRAM prices will be a key discussion item on the earnings call.