Micron Downside Risks on DRAM on NAND Chip Sales Persist

Memory chip maker Micron is set to report fiscal fourth-quarter results after the bell Thursday. Recently $MU warned revenue may come in at or below the low end of the revenue guidance range. Revenue, margins and earnings may be hit further by lower memory prices and industry oversupply that are driving the chipmaker’s grim outlook. Both Mizuho and Wells Fargo analysts downgraded Micron last week. Micron earnings have been drastically hurt by China weakness which is 30% of the company’s revenue.

MU announced last quarter a $40 billion investment in leading-edge memory manufacturing in the US as the US approved the CHIPS Act.

Micron Memory
Micron DRAM memory density

MU specializes in DRAM and NAND memory chips. DRAM, or dynamic random-access memory, is the type of memory commonly used in PCs and servers, while NAND chips are the flash memory chips used in smaller devices like smartphones and USB drives.

Earnings Outlook

  • Earnings: Adjusted earnings of $1.41 a share, down from the $2.82 a share expected at the beginning of the quarter by 29 analysts surveyed by FactSet. Micron had forecast fourth-quarter net income of $1.43 to $1.83 a share. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of $1.54 a share.
  • Revenue: $6.81 billion from Micron expected from 28 analysts polled by FactSet, down from a $9.56 billion forecast at the beginning of the quarter. Micron predicted revenue of $6.8 billion to $7.6 billion. Estimize expects revenue of $7.04 billion.
  • DRAM sales of $5.1 billion
  • NAND sales of $1.88 billion, according to FactSet.

Analysts actions ahead of earnings

Mizuho analysts Vijay Rakesh and Jordan Klein downgraded Micron and hard drive maker Western Digital to neutral from buy this week, saying “weak consumer demand, high inventory and continued supply growth will imply more downside risks over the next four to six months.” They fear Micron is building “too much inventory as they strive to keep fab utilization high to sustain better margins and drive cost downs.”

Wells Fargo analysts in a note said the upcoming results appear “very negative”, adding that absolute cuts to revenue and earnings estimates may matter less than the company’s 2023 capital expenditure guidance and its commentary on when the industry bottoms.

Citi Research analyst Atif Malik in a recent note expects Micron to cut their capex by up to 40% from 2022’s $12 billion. Micron recently announced it would invest $15 billion in its new Idaho-based facility over the next decade.

“Recent U.S. supply chain discussions continue to point to a sharp decline in DRAM memory prices in 3Q/4Q as weak smartphone/PC units drive high single digit demand bit growth below long-term low to mid-teens growth,” Malik said.

“Recent U.S. supply chain discussions continue to point to a sharp decline in DRAM memory prices in 3Q/4Q as weak smartphone/PC units drive high single digit demand bit growth below long-term low to mid-teens growth,” Malik said.

Morgan Stanley analyst Joseph Moore is underweight rating on Micron, said supply disruptions beginning with the COVID-19 pandemic are “much more impactful than what we have seen historically.”

“As we talk to purchasing managers, the number of ‘golden screw’ parts that are in short supply is declining — but there are still enough issues that in most end markets, pervasive anxiety about supply issues remains the most pressing concern,” Moore said.

“There are demand issues as well, mostly difficult comparisons in consumer markets inflated by work from home, including some consumer electronics markets, PC gaming, and to a lesser extent console gaming,” Moore said.

Stifel analyst Brian Chin recently initiated coverage on Micron at a hold rating and a $56 price target, noting that the biggest near-term risk to the stock was the uncertainty surrounding the depth or the duration of the current downcycle.

“Pricing pressure and customer inventory burn-off is already causing revenue and margins to roll-over from a May 2022 peak, and we project further deterioration into midCY23,” Chin said.

“We believe memory suppliers are apt to be more proactive than in prior downcycles with more aggressive actions to control supply, a key signal to force an earlier bottom/abbreviated downturn,” the Stifel analyst said.

MU Earnings Warning Recap

MU disclosed Q4 revenue may come in at or below the low end of its prior guidance range of $6.8-$7.6 billion. MU now expects free cash flow to be negative in 1Q23, compared to $671 million in free cash flow for 1Q22, prompting it to significantly reduce wafer fab equipment capex expectations for FY23.

In June MU reported inline Q3 results and as expected guided Q4 lower, revenue by 20% and EPS by 38%. Weakness in smartphones/PCs also hurt. Strength again came from hyperscalers demand in the datacenter. Caution here with inventories above pre-COVID levels, which creates more uncertainty. These results will have a strong bearing on others in the semiconductor sector.

The warning follows disappointing earnings reports and outlooks from Intel (INTC), Advanced Micro Devices (AMD), and NVDA.

For MU the formerly red-hot data center market is cooling off as enterprises delay cloud investments. During AMD’s earnings conference call executives stated that some deals in the data center market are taking longer to close and that trends in the enterprise business are more mixed.

Intel’s troubles are partly tied to execution issues, softening business conditions also weighed on its Datacenter and AI Group (DCAI) in Q2, which posted a 16% decline in revenue. This deceleration hurts MU because the data center market has been offsetting weakness in PCs and smartphones. Last quarter, data center revenue surged by 50% yr/yr, compared to a 2% decrease for the mobile business.

Bit Shipment Decline

MU’s bit shipments are expected to decline sequentially in 1Q23, causing a substantial qtr/qtr decline in revenue and margins. Revenue in 1Q20 (ending 11/2019) grew by 5.6% sequentially. In the fiscal year before that, Q1 revenue did fall by 6.2% qtr/qtr, but 1Q18 revenue was up by 10.8%.

The positive is that MU and other semis have taken a more conservative approach with production to support margins and to avoid a relatively less severe supply and demand imbalance. Time will tell if chips get behind the eight ball again or a smartly conserving in a downturn.

Micron Q3 Earnings After Close Thursday June 30, 2022

$2.59 Beat $2.46 EPS Forecast and $8.64 billion missed $8.67 billion forecast in revenue

  • Q3 2022 earnings released at 4 p.m. ET; conference call at 4:30 p.m. ET
  • EPS of $2.59 versus projected EPS: $2.46
  • $8.64 billion versus projected revenue: $8.67 billion

MU fiscal Q3 Earnings Highlights

  • Micron Technology (NASDAQ:MU) recorded record revenue for its third quarter of fiscal 2022 of $8.64 billion versus $7.79 billion for the prior quarter
  • Earnings per share result of $2.59, beating analyst estimates by 15 cents. Furthermore, the company produced net income of $2.63 billion and $3.84 billion in free cash flow.
  • DRAM revenues, which represent around three quarters of Micron’s top line, rose 15% from last year to $6.3 billion,
  • NAND revenues were up 26% to $2.3 billion.

Market Reaction

Micron Technology Inc
NASDAQ: MU 52.19 ▼ 3.09 (▼5.59%)
July 1, 12:10 PM EDT

Earnings Warning

Waning demand will likely mean Micron will begin decreasing the amount of chips it produces in the fall, in order to maintain firm pricing, and said it sees revenues for its fiscal fourth quarter at only 7.2 billion, much lower than the Refinitiv forecast of around $9.1 billion. The company took a 30% hit in overall China sales.

“Near the end of fiscal Q3, we saw a significant reduction in near-term industry bit demand, primarily attributable to end demand weakness in consumer markets, including PC and smartphone,” CEO Sanjay Mehrotra told investors on a conference call late Thursday. “These consumer markets have been impacted by the weakness in consumer spending in China, the Russia-Ukraine war, and rising inflation around the world.”

Management has pledged to limit capex and repurchase stock opportunistically at these levels.

“Covid control measures in China have exacerbated supply chain challenges for some customers, and the macroeconomic environment is also creating some caution amongst certain customers,” Mehrotra added. “Several customers, primarily in PC and smartphone, are adjusting their inventories, and we expect these adjustments to take place mostly in the second half of calendar 2022.”

Earnings Q2 to Q3 Comparison

Last quarter slowing demand for PCs and a COVID-related shutdown at its manufacturing facility in Xi’an China amounted to not a lot of angst last quarter for Micron (MU). However, since then China’s situation has worsened. Can the chip maker easily overcome in 3Q22?

Last quarter results and raised guidance were driven by a surge in memory content per item across a spectrum of end markets, including PCs, mobile phones, and automotive, and a favorable NAND pricing environment.

MU is still operating in a sweet spot characterized by red-hot demand and limited supply. Is that still the case? Lockdowns and supply chain disruptions are real risks. The balance is those risks versus runaway growth in the data center and auto markets for memory chip makers.

Data center generated robust revenue growth of 60% last quarter; it has become the largest market for the memory and storage industry, according to CEO Sanjay Mehrotra. This explosive growth, which is being fueled by an ever-increasing amount of data moving to the cloud, should more than offset a slowdown in PC shipments this year.

Consequently, MU forecasted DRAM bit growth in the mid-to-high single digit range this year as enterprises expand their cloud and hybrid platforms.

At the same time the automotive market is quickly becoming a major top-line contributor as electric vehicles (EVs) go mainstream and surge in popularity. Although auto manufacturers will likely remain supply-constrained for the remainder of 2022, average memory capacity per vehicle is skyrocketing due to the shift toward EVs. Sandana commented that some EVs use about 15x the amount of memory compared to the average current vehicle.

MU was able to benefit from disruptions to other companies last quarter. Over at WDC there were manufacturing issues at two factories operated by WDC and Japan-based Kioxia. These disruptions, which were caused by a contamination of materials, were reported in February and pushed NAND prices higher due to a material reduction in supply.

Like MU, Samsung (SSNLF) was affected by lockdowns in China, causing the company to lower its NAND output. This opened the door for MU to fill a void in the NAND market since only its DRAM production was halted at its Xi’an facility. Accordingly, MU’s NAND revenue (~27% of total) climbed by 19% yr/yr.


  • Remote-working and online-learning trend amid the coronavirus crisis stoked demand for cloud storage and usage of online and e-commerce services globally, compelling data-center operators to enhance their capacities in order to accommodate the demand spike for cloud services. All these factors are likely to have aided Micron’s top line during the quarter under review.
  • A solid uptick in the DRAM bit shipments for the cloud, graphics, PC and notebook, 5G and automotive markets is anticipated to have been a positive during the quarter to be reported.


  • Cryptocurrency-related demand collapsed. Bitcoin coin has crashed from $67,000 to $19,000 quickly. This should garner some negative guidance numbers in that area.
  • Micron’s heavy dependence on China is a headwind due to the ongoing trade war between the United States and China. Restrictions on exports to Huawei might have hurt top-line growth of the memory chip maker.
  • A higher mix of lower-margin NAND, coupled with low memory prices and minimal decline in manufacturing costs, is expected to have strained margins.
  • Higher prequalification and labor expenses are likely to have negatively impacted Micron’s bottom-line performance.
  • AMD has adapted from China being the prime revenue driver for the company, accounting for over 50% of its topline in the past. While it does not make semiconductors in China, numerous assembling and packaging works take place in the country. $MU was forced to shift at least a part of its Chinese operations to assembly plants in Singapore.

About Micron

Micron Technology is a world leader in innovative memory solutions that transform how the world uses Information. Through their global brands, Micron, Crucial and Ballistix they offer the industry’s broadest portfolio, and are the only company that manufactures today’s major memory and storage technologies: DRAM, NAND, NOR, and 3D XPoint™ memory

Micron specializes in DRAM and NAND memory chips. DRAM, or dynamic random-access memory, is the type of memory commonly used in PCs and servers, while NAND chips are the flash memory chips used in smaller devices like smartphones and USB drives. Like most semiconductors, memory chips have been in great demand during the COVID-19 pandemic, and prices have shot higher.

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