Earnings Results: Micron cuts capital spending to stem ‘unprecendented’ oversupply cycle

United States

Micron Technology Inc. shares fell slightly in the extended session Thursday after the memory-chip maker said it was taking steps to emerge from an “unprecedented” current market downcycle by scaling back on plans to build out capacity.

For the fiscal first quarter, Boise, Idaho-based Micron MU, -1.94% said it expects between an adjusted loss of 6 cents and net income of 14 cents a share on revenue of $ 4 billion to $ 4.5 billion. Analysts had forecast 69 cents a share on revenue of $ 5.71 billion.

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That huge miss was likely expected given the company last quarter was the first major chip maker this year to fess up that there may be pockets of oversupply in the chip market following two years of COVID-19 pandemic-driven shortages.

“Historically, the DRAM industry in recent years has been disciplined in terms of capex management and supply growth management,” said Sanjay Mehrotra, Micron’s chief executive, on a conference call after the release of results.

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

“Of course, the current environment is unprecedented with respect to the confluence of factors that we discuss that have impacted demand and the unprecedented level of inventory adjustments by our customers as well,” Mehrotra told analysts.

“Inventory levels are high and they’re going to be higher,” said Mark Murphy, Micron’s chief financial officer, on the call. “They’ll be over 150 days, we believe. And again, it’s a function of this unprecedented period, and we’re doing what we can to affect future supply or future capacity, be in a position to work those inventories down.”

“They’re high-quality inventory, so they will be useable,” Murphy told analysts. “And we’re managing working capital expenses, cash flow, all them aggressively at this time.”

That means reducing capital spending in fiscal 2023 by about $ 8 billion, or by more that 30%, with a 50% cut in spending on wafer-fab equipment, Micron’s Mehrotra said, adding that the company would continue to work closely with all end-market customers, and that all segments have reported high inventories, including cloud customers.

The companies that supply the kind of equipment that Micron buys, such as Lam Research Corp. LRCX, -2.91% and KLA Corp. KLAC, -1.58%, all reported in the previous quarter that demand was still high but that supply-chain issues hampered production. That may change given the sudden shift to pockets of chip oversupply. Lam is expected to report earnings on Oct. 19, and KLA on Nov. 2.

Following a 1.9% decline to close the regular session at $ 50.01, Micron MU, -1.94% shares fluctuated between slight gains and losses after hours Thursday, and were last down 1% following the end of the company’s conference call. Micron shares are down 46% for the year compared with a 24% fall by the S&P 500 index SPX, -2.11% and a 31% drop by the Nasdaq Composite Index COMP, -2.84%.

For the fiscal fourth quarter, Micron reported net income of $ 1.49 billion, or $ 1.35 a share, compared with $ 2.72 billion, or $ 2.39 a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, were $ 1.45 a share, compared with $ 2.42 a share in the year-ago period.

Revenue fell to $ 6.64 billion from $ 8.27 billion in the year-ago quarter.

Analysts surveyed by FactSet had forecast adjusted earnings of $ 1.37 a share on revenue of $ 6.73 billion, based on Micron’s forecast of $ 1.43 to $ 1.83 a share on revenue of $ 6.8 billion to $ 7.6 billion.

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Over the past 12 months, Micron shares have declined 30%, while the PHLX Semiconductor Index  SOX, -3.29% has dropped 28%, the S&P 500 has declined 16%, and the tech-heavy Nasdaq has fallen 26%.