Micron provides strong predictions that the glut is shrinking

(Bloomberg) — Micron Technology Inc. issued an upbeat forecast for the current period, indicating an industry glut is easing even as the chipmaker continues to face challenges in China.

Bloomberg’s Most Read

Sales will reach $4.1 billion in the fiscal fourth quarter, the company said in a statement Wednesday. That compares to an average analyst estimate of $3.87 billion.

“We believe the memory industry is past its revenue trough and expect margins to improve as the industry’s supply and demand balance is gradually restored,” Chief Executive Sanjay Mehrotra said in the statement. But recent actions in China — where the government decided Micron’s products were a security risk — “are a significant headwind that is impacting our outlook and slowing our recovery,” he said.

Like many of its peers, Micron suffered a slump in orders for its products after weak demand for smartphones and personal computers caused inventory to pile up. The company’s projection indicates that customers have run out of that inventory and are now starting to buy again.

The shares, which had already gained 34% this year, rose about 2% in extended trading. They had closed at $67.07 in New York.

Micron, the largest US memory chip maker, forecasts a loss of about $1.12 to $1.26 per share in the current period, compared to an estimated loss of $1.10.

Micron’s chips, which help store and manage information, are particularly vulnerable to fluctuations in demand because memory products are directly interchangeable and traded like commodities.

Rapid swings in the balance between supply and demand can cause producers to sell components at less than they cost to manufacture. Micron also faces formidable rivals in South Korea: Samsung Electronics Co. and SK Hynix Inc.

Although Micron customers are emerging from a pile of excess inventory, the company doesn’t expect a quick return to growth in 2023. PC shipments are expected to decline a “double-digit” percentage from a year ago. a year, collapsing to a level that’s below where this market was before the pandemic. The smartphone industry will contract by a mid-single digit percentage from a year ago, Micron predicted.

Prior to the disruptions caused by the pandemic, Micron management had argued that spreading memory chips to more markets would help prevent another boom and bust cycle. And even now, Mehrotra and his team argue that once this current set of unusual circumstances is over – the global pandemic, a war in Europe and supply chain disruptions – the industry will return to long-term profitable growth. term.

But unlike its Korean rivals, Micron has also fallen prey to geopolitical rivalry between China and the United States. China’s Cybersecurity Administration probed the company and banned its chips from critical infrastructure.

The Boise, Idaho-based company warned that about half of its sales related to China-based customers could be affected by the investigation. This represents a “low double-digit percentage” of its global revenue.

Mehrotra said on a conference call with analysts that the situation in China remained “uncertain and fluid.”

“Micron is working to mitigate this impact over time and expects revenue variability to increase quarter over quarter,” he said. The company’s “long-term goal” is to retain its global market share, Mehrotra said.

Several Micron customers are being contacted by officials as part of the China investigation, which was announced earlier this year. Micron’s revenue with businesses based in mainland China and Hong Kong, including direct sales as well as indirect sales through distributors, accounts for about a quarter of the company’s total.

In the three months ended June 1, Micron’s revenue fell 57% to $3.75 billion. The company recorded a loss of $1.43 per share, excluding certain items. That compares to an average estimate of a loss of $1.59 per share and sales of $3.69 billion.

(Updates with more CEO comments in 13th paragraph.)

Bloomberg Businessweek’s Most Read

©2023 Bloomberg LP


Leave a Comment