Micron to cut 10% of workforce as demand for computer chips plummets

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

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

Semiconductor makers are in the midst of a nosedive in demand for their products less than a year after failing to produce enough to meet orders. Consumers have put aside 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 component stockpiles and are slowing 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 in mid-2023, and the chipmaker’s revenue will improve in the second half of the year, Mehrotra said.

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

Mehrotra said that a unique convergence of circumstances — the war in Ukraine, rising inflation, covid and supply disruptions — has pushed the memory chip industry into a repeat of past cycles when prices crashed. They plummeted and wiped out the profits. Micron has responded aggressively to try to get through the difficult period quickly. Once the recession ends, the industry will resume profitable growth helped by demand for AI computing and automation from various industries, she said.

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

Unlike other parts of the chip industry, Micron’s products are built to industry standards, which means they can be exchanged for those of competitors. Because memory can be traded like a commodity, its creators are exposed to more pronounced price fluctuations.

Micron’s pledge to cut production at its factories and sluggish expansion projects will not alleviate the glut of available chips unless rivals including Samsung Electronics Co. and SK Hynix Inc. do the same. That step can help support prices, but it comes with the penalty of running expensive plants at less than full capacity, which can weigh heavily on profitability.

In addition to planned workforce reductions, the company has suspended share buybacks, is cutting executive salaries and will skip bonus payments companywide, executives said in a conference call after the results were released. .

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

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

Micron shares fell about 2% in extended trading after closing at $51.19 in New York. The stock has fallen 45% this year, a worse drop than most chip-related stocks. The Philadelphia Stock Exchange Semiconductor Index is down 33% in 2022.

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

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