Micron Lowers Guidance with Severe DRAM and NAND Supply and Demand Imbalance

Memory chip maker Micron reported lower fiscal first-quarter revenue, which dropped by nearly half to $4.09 billion as prices fall for both main types of memory, DRAM and NAND. MU reported a worse than expected net loss of $195 million for the quarter after the bell Wednesday. Revenue, margins and earnings were hit further by lower memory prices and industry oversupply that are driving the chipmaker’s grim outlook. Micron earnings have been drastically hurt by China weakness which is 30% of the company’s revenue. The chip maker warned for the current quarter.

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.

Micron Q1 23 Earnings:

  • Earnings: Loss of $195 million, a loss of 18 cents per share. Losses, adjusted for stock option expense and restructuring costs, came to 4 cents per share missing an average estimate of 10 analysts surveyed by Zacks for a loss of 2 cents per share.
  • Revenue: Revenue: $4.09B (exp $4.13B) FQ1-23 Revenue down 39% Q/Q and down 47% Y/Y
  • To Cut Headcount By 10% Over 2023
  • To Incur Charges Of At Least $30M In Q2
  • Sees Q2 Adj Revenue $3.6B To $4B (exp $3.88B)
  • Gross margins at 40.3%, slightly above estimates of 39.7%.
  • DRAM sales 69% of total revenue in FQ1-23
    ▪ Revenue down 41% Q/Q and down 49% Y/Y
    ▪ Bit shipments declined in the mid-20 percent range Q/Q
    ▪ ASPs declined in the low-20 percent range Q/Q
  • NAND sales 27% of total revenue in FQ1-23
    ▪ Revenue down 35% Q/Q and down 41% Y/Y
    ▪ Bit shipments declined in the mid-teens percent range Q/Q
    ▪ ASPs declined in the low-20 percent range Q/Q
  • Cash flow from operations FQ1-23: $943M (23% of revenue)
  • Net CapEx ▪ FQ1-23: CapEx of $2.5B ▪ FY-23: CapEx guidance of $7.0B to $7.5B
  • FCF ▪ FQ1-23: Negative $1.5B
  • Buybacks ▪ FQ1-23: $425M (8.6M shares)
  • Dividends Dividend payment of $0.115 per share will be paid on January 19th
  • Liquidity $14.6B in liquidity at end of FQ1-23
  • Cash-Debt $1.8B of net cash at end of FQ1-2

Market Reaction

  • MU $51.19+0.51 (+1.01%) At close: 04:00PM EST
  • MU $49.94 -1.25 (-2.44%) After hours

“Micron delivered fiscal first-quarter revenue and earnings per share (EPS) within our guidance range
despite a pricing environment that deteriorated significantly from our prior call. The industry is
experiencing the most severe imbalance between supply and demand in both DRAM and NAND in the last 13 years.
Micron is exercising supply discipline by making significant cuts to our capital expenditures (capex) and wafer starts while maintaining our competitive position. We are also taking measures to cut costs and operating expenditures (opex) across the company.” – Micron Technology President and CEO Sanjay Mehrotra.

Outlook

Micron Chief Executive Sanjay Mehrotra pointed to “challenging conditions” during the quarter, though signaled optimism demand would improve next year. 

  • For the current quarter ending in February, Micron expects its results to range from a loss of 89 cents per share to a loss of 69 cents per share. Much worse than analysts’ estimates for a 30 cents loss.
  • Micron said the layoffs, part of a restructuring plan, would result in charges of at least $30 million in the second quarter.
  • The company said it expects revenue in the range of $3.6 billion to $4 billion for the fiscal second quarter. Analysts surveyed by Zacks had expected revenue of $6.12 billion.
  • Reducing capex: FY23 capex lowered to a range between $7.0B to $7.5B. Expect FY23 WFE to be down more than 50% Y/Y. Significantly reducing FY24 capex from earlier plans to align with the supply-demand environment. Expect FY24 WFE to fall from FY23 levels, even as construction spending increases Y/Y.
  • Sharp reduction in wafer starts: As previously announced, Micron reduced wafer starts for DRAM and NAND by ~20%.
  • Slowing process tech node transitions: Given the decision to slow 1-beta production ramp, now expect that 1-gamma introduction will be in 2025. Next NAND node beyond 232-layer will be delayed to align to the new demand & supply outlook.
  • Reducing costs: Project spending to decrease through the year – actively lowering discretionary spend. Expect to exit FY23 with quarterly opex of around $850M, with additional savings in COGS in the P&L.

Flash memory, used in hard drives and smartphones to store data, is set for a 32% price decline in 2023, while memory that helps computers run faster is expected to fall 29%, according to BMO Capital Markets analysts.

Playing the long game Micron plans to expand its production, including spending up to $100 billion on a new plant in upstate New York. MU announced last quarter a $40 billion investment in leading-edge memory manufacturing in the US as the US approved the CHIPS Act. Micron and other chip companies anticipate the semiconductor market will roughly double by 2030 to $1 trillion in sales globally.

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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