Micron to Cut 10% of Workforce as Demand for Computer Chips Slumps

(Bloomberg) — Micron Technology Inc., the largest U.S. maker of memory chips, said the industry’s worst surplus in more than a decade will make it difficult to return to profitability in 2023.

Bloomberg’s most read

The company on Wednesday announced a series of cost-cutting measures, including a 10% reduction in the workforce, aimed at helping it withstand a rapid drop in revenue. Micron also projected a sharp decline in sales and a wider loss than analysts had estimated for the current quarter.

Semiconductor makers are in the midst of falling demand for their products less than a year after they were unable to produce enough to meet orders. Consumers have abandoned purchases of personal computers and smartphones amid rising inflation and an uncertain economy. The makers of those devices, the main buyers of memory chips, are now stuck with stockpiles of components and are scaling back orders for new stock.

The industry is experiencing its worst supply-demand imbalance in 13 years, according to Micron CEO Sanjay Mehrotra. Inventory should peak in the current period and then decline, he said. Customers will move to healthier inventory levels by mid-2023, and the chipmaker’s revenue will improve in the second half of the year, Mehrotra said.

Also Read :  Singapore's Skills Union wants to close the skills gap via live video training

“Profitability will be challenged throughout 2023 because of the oversupply that exists in the industry,” he said in an interview. “The rate and pace of the recovery in terms of profitability depends on how quickly supply is adjusted.”

Mehrotra said a unique convergence of circumstances – the war in Ukraine, rising inflation, Covid and supply disruptions – has caused the memory chip industry to repeat past cycles when prices plummeted and eliminated the benefits Micron responded aggressively to try to quickly overcome the difficult period. Once the slowdown ends, the industry will resume profitable growth helped by demand for artificial intelligence computing and automation from various industries, he said.

Micron, which had previously announced reductions in factory production, is trimming its budget for new plants and equipment, and now expects to spend $7 billion to $7.5 billion for the fiscal year, down from its previous target of up to $12 billion. The company is slowing the introduction of more advanced manufacturing techniques and predicts that spending on new production will fall across the industry.

Also Read :  Stock Market Today: Nike Earnings Light Fire Under Stocks

Unlike other parts of the chip industry, Micron’s products are built to industry standards, meaning they can be interchanged with competitors’ products. Because memory can be traded as a commodity, its manufacturers are exposed to sharper price swings.

Micron’s pledge to reduce factory output and slow-expansion projects won’t ease the glut of available chips unless rivals including Samsung Electronics Co. and SK Hynix Inc., follow suit. That step can help support prices, but comes with the penalty of running expensive plants at less than full capacity, something that can greatly affect profitability.

In addition to its planned staff cuts, the company has suspended share buybacks, is cutting executive pay and will skip bonus payments across the company, executives said on a conference call after its results were released.

Micron said sales will be about $3.8 billion in the fiscal second quarter. That compares with the average analyst estimate of $3.88 billion, according to data compiled by Bloomberg. The company projected a loss of about 62 cents per share, excluding certain items, in the period ending in February, compared with a loss of 29 cents expected by analysts.

Also Read :  Anchor Loans Names Industry Veteran Brad Chmura as Chief Revenue Officer

In the three months ended Dec. 1, Micron’s revenue fell 47% to $4.09 billion. The company had a loss of 4 cents per share, excluding certain items. That compares with an average estimate of a loss of 1 cent per share on sales of $4.13 billion.

Micron shares were down 2% in extended trading after closing at $51.19 in New York. The stock is down 45% this year, the worst decline for most chip-related stocks. The Philadelphia Stock Exchange’s semiconductor index is down 33% in 2022.

Last month, the company warned it was cutting production by 20% “in response to market conditions”. Boise, Idaho-based Micron had 48,000 employees as of Sept. 1, according to filings.

More reading from Bloomberg Businessweek

© 2022 Bloomberg LP

Source

Leave a Reply

Your email address will not be published.