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Micron Technology ended the quarter with a loss and announced a 10% reduction in staff.

Published: 2022-12-22

Many memory manufacturers have entered a difficult period for themselves, and only Micron Technology has the opportunity to speak on this topic right now, as it has just published a quarterly report for the first fiscal quarter. Revenue fell by 47%, net losses reached $195 million, capital expenditures will have to be cut, and staff will be reduced by 10%. Micron does not count on a quick improvement in the situation.

On the first of December, the first fiscal quarter of 2023 ended in the Micron Technology calendar. Three months ago, the company had about 48,000 employees, now they will have to reduce their number by about 10%. Management salaries will be reduced by 5 to 20%, and bonuses will cease to be paid. Last month, the company announced plans to reduce the number of silicon wafers it processes every month by 20%. In this mode, Micron enterprises will continue to operate indefinitely until the situation with the demand for memory begins to recover. At the end of fiscal year 2023, Micron's fixed costs will increase by $460 million due to low plant utilization.

From 2020 to early 2022, memory chip inventories increased as demand grew. This year, a combination of unfavorable factors brought it down, the gap between supply and demand reached its maximum value in 13 years. Inventories will peak in the current quarter and then begin to decline. Micron management expects revenue to start growing from March 2023, with customer inventory gradually normalizing from mid-2023. All this does not allow Micron to count on a quick return to profitability, and the whole of 2023 will be difficult from this point of view.

When the crisis in the industry is overcome, according to CEO Sanjay Mehrotra, the locomotive of profit for memory manufacturers will be the artificial intelligence and industrial automation segments. For the current fiscal year, which ends in September, Micron expects to reduce capital expenditures to $7 billion, compared to the previously planned $8 billion and the $12 billion spent in fiscal year 2022. Costs for the purchase of manufacturing equipment will more than halve sequentially. Even in fiscal year 2024, they will be lower than in 2023. Micron will be forced to slow down its process migration and EUV lithography adoption due to new market conditions. In the past quarter, the company's capital expenditures amounted to $2.47 billion.

Memory demand in the server segment will remain below historical levels throughout 2023. According to the results of the current calendar year, the capacity of the PC market in real terms will decrease by 18–19%, and in the next one by another 2–5%. Ultimately, by 2024, this market will return to the levels of 2019, according to Micron. This is contrary to the forecasts of many market participants, who believe that the pandemic has brought the PC market to a new level of demand, which in one form or another will continue in the future. The smartphone memory segment will shrink by 10% this year and will remain flat or grow slightly next year if demand improves in the Chinese market.

The automotive segment showed a 30% growth in memory demand last quarter, and even if macroeconomic uncertainty persists, it could show noticeable growth by the end of fiscal year 2023. In the current calendar year, the demand for DRAM and NAND memory chips will increase equally by 2-5%. Next year it will grow by 10% in the first case and by 20% in the second. At the same time, demand for memory will remain below historical trends for two consecutive years, as the influence of regional geopolitical factors in Europe and China will be added to the overall unfavorable macroeconomic environment.

Micron's revenue last quarter was $4.09 billion, down 47% from the same period last year and 38% less than the previous quarter's revenue. The rate of return turned out to be lower than our own forecasts, dropping to 22.9% against the target of 26%. The company ended the quarter with $1.8 billion in cash. Losses were estimated at $195 million on a GAAP basis and $39 million on a non-GAAP basis. Operating losses reached $209 million in the first case and $65 million in the second. In the current fiscal quarter, Micron expects to earn from $3.6 to $4 billion. The publication of financial statements caused a decrease in the company's share price after the close of the main trading session by a couple of percent. In total, since the beginning of the year, Micron shares have fallen in price by 45%.