Micron writes off $1.43B in inventory as sales dive, claims only way is up

AIs are going to need memory and storage silicon, you know

Micron has had another bad quarter – one of its largest quarterly losses ever – with revenues plunging and predictions of further workforce reductions, but claims its performance was in line with expectations, saying it expects to see a return to growth in the near future.

The memory chipmaker reported revenue of $3.69 billion for its second quarter of fiscal 2023 ended March 2. This was down from $4.09 billion in the previous quarter, and a whopping 53 percent fall from the $7.79 billion it reported for the second quarter a year ago, when the company was still riding the hike in demand following the pandemic.

Micron also made a net loss of $2.31 billion for the quarter, but as the number fell within its earlier guidance, folks should have been expecting this. CEO Sanjay Mehrotra laid the blame squarely on the downturn the chip market is currently experiencing, hit by inflation and other factors that have dampened demand.

“The semiconductor memory and storage industry is facing its worst downturn in the last 13 years, with an exceptionally weak pricing environment that is significantly impacting our financial performance. We have taken substantial supply reduction and austerity measures, including executing a companywide reduction in force,” Mehrotra said.

That reduction was billed as a 10 percent drop in the workforce during Micron’s previous earnings call, but the company now expects its overall headcount reduction to approach 15 percent during the current financial year, along with wider cuts to operating expenses.

It also reported inventory write-downs of $1.43 billion, hitting poor old shareholders to the tune of $1.34 per diluted share.

Micron’s DRAM revenue for the quarter was $2.7 billion, representing 74 percent of the total, although it declined 4 percent from the previous quarter, with prices dropping by approximately 20 percent.

NAND revenue stood for the quarter stood at $885 million, down 20 percent on the prior quarter, with bit shipments increasing in the mid-to-high single-digit percentage range and prices declining in the mid-20s percentage range, Micron said.

A growing AI may feast on memory and storage silicon

But Mehrotra believes the company may now be through the worst of it, and that “customer inventories have reduced in several end markets, and we see gradually improving supply-demand balance in the months ahead.”

He predicted that Micron will soon transition to “sequential revenue growth” in its quarterly results, rather than the reverses of the past few quarters.

In particular, Mehrotra expects the memory and storage silicon that it produces to be in high demand in the near future, driven by trends such as AI.

“We believe that the memory and storage total addressable market (TAM) will grow to a new record in calendar 2025 and will continue to outpace the growth of the semiconductor industry thereafter,” he said, pointing to recent developments with large language models (LLMs) such as ChatGPT, which need significant amounts of memory and storage.

“As more applications of this technology proliferate, we will see training workloads in the datacenter supplemented with widespread inference capabilities in the datacenter as well as in end user devices, all of which will drive significant growth in memory and storage consumption,” Mehrotra said.

But before that, the company still faces a tough quarter ahead, and expects the revenue for its third fiscal quarter of 2023 to be about $3.7 billion - plus or minus $200 million - meaning growth is effectively flat.

“We expect profitability to remain extremely challenged in the near term,” said Micron Chief Financial Officer Mark Murphy.

“We do project profitability to improve sequentially due to lower inventory write-down and free cash flow to improve slightly driven by reduced capital spend. But we forecast operating margin and free cash flow to remain significantly negative through the fiscal year,” he added.

Green shoots

Micron is not the only company predicting a future uptick; German chipmaker Infineon Technologies said it is updating its expectations for the current quarter to be slightly up at just above €4 billion ($4.3 billion), and revenue for the full 2023 fiscal year to be “meaningfully above” the previously expected level of around €15.5 billion ($16.8 billion).

Gartner's vice president for semiconductors and electronics Richard Gordon forecast last year that total semiconductor industry growth during 2023 will be negative, with a recovery in the market starting in 2024 and accelerating in 2025.

The global semiconductor industry association SEMI also forecast that production of 300mm wafers will hit an all-time high of 9.6 million wafers per month in 2026, but that expansion will slow this year due to lower demand for memory and logic devices after strong growth in 2021 and 2022.

SEMI said its member companies are planning 82 new facilities and wafer production lines to start operations between 2023 and 2026. ®