Due to the decline in demand for electronic products and chips, Micron, the largest memory chip factory in the United States, almost halved its revenue last quarter and turned from profit to loss. Shares fell more than 2% on the news. However, the CEO predicted that the inventory peak period will appear in this quarter, and by the middle of next year, customer inventory levels will be relatively healthy, which will help Micron’s revenue improve in the second half of the year.
F2023 Q2 (as of February) key financial forecast data vs FactSet survey analyst forecast
- Adjusted EPS: -62 cents (range -0.72 to -0.52 cents) vs. -32 cents
- Revenue: $3.8 billion (between $3.6 and $4 billion) vs. $3.92 billion
- Capital expenditures: $7 billion to $7.5 billion
Amid high inflation and economic uncertainty, consumers are cautious about spending on PCs and smartphones. Customers of electronic products for memory chips have reduced their orders due to increased inventory of components.
Sanjay Mehrotra, CEO of Micron, said that the chip industry is experiencing the most serious supply-demand imbalance in 13 years, and the peak period of inventory should fall in this quarter, and then start to decline. He predicts that customer inventory levels will drop to healthier levels around the end of 2023, allowing Micron’s revenue to improve in the second half of the year.
Micron will cut the budget for new factories and equipment. The annual capital expenditure in 2023 will be between 7 billion and 7.5 billion US dollars, which is much lower than the 12 billion yuan in 2022. In addition, the capital expenditure in 2024 will also be greatly revised down.
At the same time, Micron will slow down the pace of introducing more advanced production technologies, and it is expected that the entire chip industry’s spending on new production will decline. Micron fired the industry’s first shot this summer, warning that the chip industry’s market conditions will weaken.
“Profitability through 2023 remains challenging,” Mehrotra said. In addition to laying off 10% of its workforce, Micron will also cut executive salaries, suspend company-wide bonuses, and suspend the execution of treasury shares.The company employed 48,000 people worldwide as of Sept. 1.
Micron (MU-US) closed up 1.01% to $51.19 per share on Wednesday, but fell 2.2% after hours, dragged down by earnings reports.Micron has fallen 45% this year, far worse thanfee halfThe index fell 33% over the same period.
F2023 Q1 (ended December 1) Key financial report data vs FactSet analyst forecast
- Revenue: Down 47% to $4.09 billion vs. $4.13 billion
- EPS before some items: -4 cents vs. -1 dollar
- Net loss: $195 million
Micron’s revenue in the first quarter decreased by 47% year-on-year to US$4.09 billion. Compared with the same period last year, it turned from profit to loss, with a net loss of US$195 million.
Many chipmakers, including those from Intel and Qualcomm, have responded to the slump in demand by cutting spending and laying off workers.
Micron predicts that several important terminal markets will face challenges next year. For example, cloud computing giants such as Amazon and Alphabet will see spending growth far below historical levels next year. PC shipments are expected to decline again next year, and smartphone shipments are expected to remain flat or grow only slightly.
Although Micron promised to reduce production and slow down expansion plans, it needs the response of its peers Samsung and SK Hynix to be effective. Unlike other types of chips, Micron’s chips are manufactured according to industry standards, which means they can be replaced with competitors’ products. In addition, memory chips can be traded like commodities, making manufacturers more vulnerable to price fluctuations.
On the other hand, although production cuts can support product prices, they will reduce factory capacity utilization and squeeze profits.
WedBush analyst Matthew Bryson said that Micron’s message at the law conference is in line with the current situation. There is currently no sign that the memory chip business has recovered. Despite this, Micron is still trying to create a better supply and demand environment.
According to Micron’s filing with the Securities and Exchange Commission (SEC), 10% of layoffs next year will result in $30 million in restructuring costs, which will be recognized in its second-quarter financial report.