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Micron Sees Late ’23 Memory Rebound. But It’s Cutting Staff And Trimming CapEx.

Softening demand for personal computers, smart phones and servers hit Micron’s results.

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Technology posted soft results for its fiscal first quarter ended Dec. 1, but the chip maker projected a sharp improvement in conditions for the memory market in the second half of the company’s August 2023 fiscal year.

The chip maker’s tough quarter reflects softening demand and elevated inventories in key end markets, including PCs, smartphones, and servers. While the weakness in those segments is well known, Micron nonetheless provided a sobering outlook for the next few quarters, reducing costs while it awaits an improvement in macroeconomic conditions.

Among other steps in response to the soft market, Micron announced plans to cut staffing by 10%, and it trimmed its outlook for capital spending.

For the quarter, Micron (ticker: MU) posted revenue of $4.09 billion, down 47% from the year-earlier quarter, reflecting softer demand across most of the company’s end markets, and down 38% sequentially, falling within the lower end of the company’s guidance range of $4.25 billion, give or take $250 million.

On an adjusted basis, Micron lost $39 million, or 4 cents a share, consistent with its forecast for a profit of 4 cents, give or take a dime. Street consensus had called for $4.1 billion in revenue and a loss of a penny a share.

Under generally accepted accounting principles, the company lost $195 million, or 18 cents a share. Gross margin in the quarter on a non-GAAP basis was 22.9%, below the company’s forecast of 26%, give or take two points.

Micron said that after $2.47 billion in capital spending, the company had adjusted free cash flow of negative $1.53 billion. Micron bought back $425 million of stock in the quarter, and finished the period with $1.8 billion of net cash.

In a statement, CEO Sanjay Mehrotra said that the company expects improving customer inventories to result in higher revenue in the fiscal second half, with “strong profitability once we get past this downturn.”

For the fiscal second quarter, Micron sees revenue of $3.8 billion, give or take $200 million, with a non-GAAP loss of 62 cents, give or take 10 cents. Street consensus has called for $3.8 billion and a loss of 30 cents.

In a presentation for the company’s investor call this afternoon, Mehotra said that the company is “making significant cuts” to both capital spending and operating expenses in response to the softer demand environment. But he also said that Micron is seeing customer inventories decline, and that most should be at “relatively healthy levels” by the middle of calendar 2023.

Micron said it now expects overall 2023 capital expenditures of between $7 billion and $7.5 billion, down from a previous forecast of $8 billion, and below the $12 billion level in fiscal 2022, with spending on wafer fabrication equipment down more than 50%. And Micron says fiscal 2024 spending on wafer fab hardware will be below fiscal 2023 levels. The company also said it is slowing the pace of progress toward smaller line widths to align with “the new demand outlook and required supply growth.”

Not least, Micron said it is taking steps to reduce costs, including suspension of bonuses, reduced discretionary spending, executive salary cuts and a 10% reduction in head count through both voluntary attrition and staff cuts. The company had 48,000 employees as of the end of fiscal 2022.

Micron said that the company expects data center demand in 2023 to be “well below” historical trends due to inventory reductions at key customers, adding that end demand should strengthen once the economic conditions improve. 

The company now sees PC units down in the high teens in 2022, with a further low-to-mid single digital decline in 2023 back to 2019 levels. Micron sees smartphone units down 10% this year, with a flat to slightly up year in 2023, aided by improved demand in China.

Micron also said that auto revenues in the latest quarter were up about 30%; the company said that while the macroeconomic environment creates some uncertainty, it expects “robust growth” in the sector in FY 2023.

Micron said that calendar 2022 overall bit demand growth will be in the low-to-mid single digits for both DRAM and NAND memory chips. For 2023, Micron sees 10% demand growth for DRAM, and 20% growth for NAND.

“For both years, demand in DRAM and NAND is well below historical trends and future expectations of growth, largely due to reductions in end demand in most markets, high inventories at customers, the impact of the macroeconomic environment, and the regional factors in Europe and China,” the company said.

Micron also said that “due to the significant supply demand mismatch entering calendar 2023, we expect that profitability will remain challenged throughout 2023.”

In late trading Wednesday, Micron is off 1%, to $50.62.

Write to Eric J. Savitz at eric.savitz@barrons.com

Credit: marketwatch.com

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