Micron Technology Inc., the most prominent memory chip maker in the US, is facing the worst demand-supply mismatch in over a decade.
The company said it is challenging to turn profitable in 2023 and announced a 10% layoff of workers to cut costs and counter revenue drops. It also projected a steep decline in sales and bigger losses than analysts’ estimates for the current quarter.
Semiconductor manufacturers are facing extremely low demand for their products. This is less than a year back when they could not meet orders. The uncertain economy and inflation have forced consumers to defer purchases of smartphones and personal computers. The producers of these products are the primary consumers of memory chips, and they have slowed orders for new chips.
Demand-Supply Imbalance
CEO of Micron, Sanjay Mehrotra, says the industry is facing the worst demand-supply gap in the last 13 years. According to him, inventory will decline after peaking in this current quarter. Chipmakers’ revenue is expected to improve after their clients achieve a healthy inventory level by the middle of 2023.
Micron has responded quickly to events such as the Covid and supply disruptions, the war in Ukraine, and increasing inflations that led to the memory chip industry facing the worst impact.
The company has already announced a reduction in production output. It is now lowering its budget for new plant and equipment from an earlier target of $12 billion to $7 to 7.5 billion for the fiscal year. The company is slowly introducing new technology and predicts spending in the industry will fall.
Micron products are built to industry standards and can be swapped with those of competitors, unlike other products in the chip industry. Since memory chips can be traded like a commodity, it is more prone to wild price swings.
The decision of Micron to slow its production and expansion projects will only improve the situation if rivals such as SK Hynix Inc. and Samsung Electronics also cut production. The all-around step can help stabilize prices but also carries the risk of plants operating lower than Capacity And Impacting Profitability.
Austere Measures
Micron has been put on hold for share buybacks. It is cutting executives’ salaries and skipping bonus payments. The company estimates sales of $3.8 billion in the second quarter of this fiscal year compared to average estimates of $3.88 billion. Per analysts, the earnings per share are projected at 62 cents compared to a loss of 29 cents.
Micron’s revenue declined for the previous quarter to $4.09 billion, down by 47%. The share price fell 2% to $51.19 in New York Wednesday. The stock has already lost 45% of its value this year, its worst performance.
The Boise, Idaho-based chip makers announced they cut production by 20% due to market conditions last month. It has 48, 0000 employees as per its filing on September 1.
