Micron pledges $40b for US fabs as financial headwinds mount

The memory biz is bracing for a recession-fueled drop in demand

Micron committed to investing $40 billion in new semiconductor manufacturing capacity in the US over the next decade, even as the company warns of financial headwinds due to slipping product demand.

The announcement comes just as President Joe Biden signed the $280 billion CHIPs and Science Act into the law this morning.

The Idaho-based chipmaker is a leading producer of DRAM and NAND flash memory used in system memory, SSDs, memory cards, and embedded applications. Micron says production on the new facilities will begin in the second half of the decade and will create roughly 40,000 new jobs including about 5,000 high-paid technical and operations roles at the company.

“I thank President Biden, US Secretary of Commerce Gina Raimondo, and the administration as well as as members of Congress for their bipartisan support of the CHIPs and Science Act, which is an important step toward solidifying American semiconductor leadership for decades to come,” Micron CEO Sanjay Mehrotra said in a canned statement.

He added that the subsidies afforded by the CHIPS bill — which amount to about $52 billion, plus an additional 24 billion in tax breaks — will help the company grow its domestic memory production from less than 2 percent to more than 10 percent of global supply by 2030.

The announcement builds on the company’s previous commitment to invest $150 billion into semiconductor research and development and manufacturing. Micron has indicated that the $40 billion is the first part of that commitment, which was previously held up pending the passage of the CHIPS Act.

The chipmaker now expects to carve out a sizable take of subsidies to finance its foundry expansion.

Financial trouble mounts

Micron’s fab spending and optimistic outlook comes in stark contrast to the grim picture painted by CFO Mark Murphy during a press conference early Tuesday.

Speaking to financial analysts this during a fireside chat at the KeyBanc Technology Leadership Forum, Murphy warned that macroeconomic conditions related to supply chain and customer demand had worsened significantly since the company’s earnings in June.

“In this August quarter we anticipated there would be inventory adjustments and PCs and smartphones and then some you know isolated adjustments in some other areas like enterprise,” he said. “But actually in the quarter that we’re in — the August quarter — it’s broadened and weakened more.”

Micron is now seeing inventory adjustments across most end markets, including the cloud, automotive, and industrial markets.

“Given the macro setup, companies are being more cautious about the inventory levels they hold,” he said. “It’s a challenging setup for this quarter that we're in and our first quarter. In conditions like this, we’ve chosen to build up our inventories even more as the pricing in the market isn’t reflecting fair value for the products.”

The company now expects Q4 revenues to come in below guidance, with Q1 revenues subject to similar challenges. In response to these conditions, Murphy said the company is reassessing its capex expenditures to accommodate changes in the macroeconomic climate.

“We are in the process of avoiding, reducing, and delaying capex. We are pushing things out, we’re cancelling,” he said.

Murphy’s comments seem to confirm recent reports out of TrendForce, which indicate an industry-wide oversupply of NAND and DRAM component, which coupled with a deepening recession, are expected to drive inventories up, and crater pricing.

Across the board, the analyst firm projects an 8-13 percent decline in NAND pricing during the third quarter, with these headwinds potentially extending in to the fourth quarter of the 2020 calendar year.

DRAM, which is in the midst of a refresh to DDR5, is expected to fair better falling 3-8 percent in the third quarter. ®