Micron described a devastating fiscal second quarter and confirmed 15% workforce reductions on Tuesday but laid out hope for long-term improvements based heavily on widespread interest in generative AI.
The company, based in Boise, Idaho, continues to lead the industry in DRAM and NAND technology amid the worst downturn for memory and storage in the past 13 years with “an exceptionally weak pricing environment,” CEO Sanjay Mehrotra told analysts on an earnings call
By the numbers, the situation for fiscal 2Q, ended March 2, was stark. Revenues were $3.69 billion, down from $4.09 billion in the prior quarter and tanked 53% from the same quarter a year ago when revenues reached $7.79 billion.
Mehrotra confirmed 15% workforce reductions to cut costs, equal to about 7,200 workers out of a work force of 48,000 globally in 2022.
“We have taken substantial supply reduction and austerity measures, including executing a company-wide reduction of force,” Mehrotra said in prepared remarks.
Nonetheless he predicted gradual improvement in supply-demand balance in coming months. “We are navigating the near-term difficult environment with our strong technology position, deep manufacturing expertise, strengthening product portfolio, solid balance sheet and incredibly talented team,” he added. “Beyond this downturn we anticipate a return to normalized growth and profitability…”
He even projected the memory and storage total addressable market will grow to a record in calendar 2025. Noting growth in AI, he said an AI server can have as much as eight times the DRAM content of a regular server and up to three times the NAND content. “We are well-positioned to capture the memory and storage opportunities and that AI and data-centric computing architectures will provide,” Mehrotra added.
“This is very, very early stages of generative AI, and these are the trends that ultimately really drive greater demand for a long time to come for memory and storage,” Mehrotra said in response to a question from an analyst at UBS. “ I mean when you look at really the future, it equals AI and AI equals memory, and Micron is well positioned with our technology and product roadmaps to address the growing opportunities there.”
While revenues dropped across many of its traditional markets due to oversupply and lowered prices, he said auto revenue grew by 5% year-over-year. PC and smartphone demand have dropped following an upsurge during the pandemic while many companies, not only Micron, responded with an upsurge in semiconductor production that has now resulted in inventory oversupply.
“In response to the industry environment, Micron has taken a number of decisive actions in fiscal 2023,” Mehrotra said, noting a reduction by 40% of its capex spending plan to $7 billion. Wafer fab equipment spending will be down more than 50%, he said.
The market responded favorably to the Micron earnings report, with its price up more than 5% in early trading Wednesday to $62.49 a share. Part of the reaction may have been due to Micron’s business outlook for the current 3Q, which included a write-down of $500 million associated with inventory produced in the third quarter. Third quarter projections are for $3.7 billion in revenues with an earnings loss of $1.79.
“They’re writing down older excess inventory, at least clearing out excess inventory,” wrote Needham analyst Rajvindra Gill. “So if we contemplate a bottom in mid-quarter then we start to go to recovery in H2 and potentially a return to growth in CY24.”
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