Micron_Promo_4
(Image courtesy of Micron Technology).

Micron Technology Sees Slight Slowdown Ahead

Over the last two years, a shortage of memory chips used in everything from smartphones to automobiles has propped up prices higher and higher. That has transformed Samsung Electronics into the largest supplier of semiconductors by revenue, displacing Intel. The booming market has also turned things around for Micron Technology, which went from zero to $15 billion of profit over that period.

But last week, Micron tamped down its revenue forecast for the current quarter, signaling that the market rally may be over.

The company expects revenues to fall from $8.44 billion in the fourth quarter to between $7.9 billion and $8.3 billion in the first quarter of next year. That would be its slowest rate of annual growth since the market turned around, down from 38 percent last quarter. Operating profit is expected to be $2.95 per share versus estimates of $3.07. Last quarter, the company reported profits of $4.38 billion or $3.56 per share.

Chief executive officer Sanjay Mehrotra pointed out that personal computer companies are cutting production because of microprocessor shortages. That means fewer memory chips bought from Micron. Other customers are adjusting the amount of inventory they hold, which could also hurt semiconductor sales. The company said that tariffs on chips manufactured in China and imported to the United States would also shave something off its bottom line.

The forecast comes as other memory chip suppliers erect new factories to take advantage of the prolonged boom. This year, capital expenditures on memory chips are projected to be around $54 billion, more than half of the semiconductor industry’s combined spending over that period, according to market researcher IC Insights. Falling prices have recently raised the question among analysts whether production has been increased up too impulsively.

 That could soften commodity memory prices, which fluctuate based on levels of supply and demand, potentially hurting the profitability of manufacturers including Micron and rivals Samsung, SK Hynix and Toshiba. IC Insights estimates that the DRAM market will grow around 53 percent this year compared to 76 percent last year, while NAND flash sales are expected to grow 29 percent this year, down from 46 percent growth in 2017.

Micron contends that memory suppliers are more disciplined than they once were, which will help preserve prices. Working in its favor is the growing use of memory chips in more diverse applications, particularly cars and factory machines. The company has long said that the market's newfound broadness insulates it against supply gluts and falling prices. Previously, the company depended more on smartphones and PCs.

The company’s profit margins have increased amid ramped-up production of new 64-layer NAND. Margins in the latest quarter were around 61 percent. They were 51 percent the same time last year. The Boise, Idaho-based company said it would introduce 96-layer NAND before the end of the year, boosting its availability next year to further reduce the cost of storage hardware and preserve its gross margins.

But the company’s main rival Samsung, which holds 40 percent of the DRAM and NAND markets, will reportedly curtail new memory production in an effort to prevent a supply glut in the face of slowing demand. Samsung lowered the DRAM production it planned to add this year below 20 percent, according to Bloomberg. The South Korean conglomerate will not increase its NAND output this year more than 30 percent, instead of 40 percent.

Micron reported property, manufacturing plant, and equipment assets in the third quarter of $23.7 billion, up from 22.7 billion last quarter and $19.4 billion a year ago. Micron is trying to implement a strategy of investing 30 percent of revenue in capital expenditures. Chief financial officer David Zinsner said on an analyst conference call last week that upgrading and expanding factories will account for 25 percent of its capital spending in 2019.

The company said that it would focus on expanding factories and installing new machinery that can manufacture more advanced DRAM and increase the thickness of 3D NAND. Mehrotra said that wafer supplies would remain unchanged. Capital expenditures in the fourth quarter were $2.1 billion and $8.2 billion for the full year. Next year, the largest American memory chip maker expects to spend around $10.5 billion.

Micron burned brightly over the last year. Annual revenues jumped from $20.3 to $30.4 billion, with operating income more than doubling from $5.9 to $15 billion over the period. Profit margins for the year increased, too, from 41.5 to 58.9 percent. About a third of revenue came from data center and graphics applications, more than doubling annually. Micron said that it also expects the artificial intelligence boom to drive sales.

Long-term storage and short-term memory for heavy industry and automobiles made up more than 15 percent of its revenues over the last year. Micron is bolstering its ability to supply chips to these sectors by spending $3 billion over the next decade to upgrade its Mannassas, Virginia manufacturing plant. A new clean room there is expected to be complete before the end of 2019 and enter production in the first half of 2020.

Mehrotra added on last week's conference call that the Boise, Idaho-based company expects “industry cyclicality to be more dampened than in the past as industry supply growth from [process] node transitions slows structurally and supply growth requires higher levels of [capital spending]. In addition, we continue to see robust diversified demand drivers and are confident in the long-term outlook for our business.”

TAGS: Supply Chain
Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish