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

Micron to cut 10% of its 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 announced a series of cost-cutting measures on Wednesday, including a 10% reduction in the workforce, aimed at helping it cope with a rapidly declining revenue. Micron also forecast a sharp drop in sales and a larger loss than analysts had estimated for the current quarter.

Semiconductor makers are in the midst of a slump in demand for their products less than a year after they were unable to produce enough to meet orders. Consumers have suspended purchases of personal computers and smartphones amid rising inflation and an uncertain economy. Manufacturers of these devices, the main buyers of memory chips, are now stuck with component inventories and slowing orders for new stock.

The industry is experiencing its worst supply-demand imbalance in 13 years, according to Micron chief executive Sanjay Mehrotra. Inventories are expected to 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, Mehrotra said.

“Profitability will be tested throughout 2023 due to 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 aligned.”

Mehrotra said a unique convergence of circumstances – the war in Ukraine, a spike in inflation, Covid and supply disruptions – pushed the memory chip industry into a repeat of past cycles when prices fell and wiped out profits. Micron reacted aggressively in an attempt to get through the rough patch quickly. Once the recession is over, the industry will resume profitable growth helped by demand for artificial intelligence and automation from various industries, he said.

Micron, which had previously announced plant production cuts, is cutting its budget for new plants and equipment and now expects to spend $7 billion to $7.5 billion for the fiscal year, down from an earlier target. of $12 billion. The company is slowing the introduction of more advanced manufacturing techniques and expects spending on new production to decline across the industry.

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

Micron’s promise to cut production at its factories and slow expansion plans won’t reduce the glut of available chips unless rivals, including Samsung Electronics Co. and SK Hynix Inc., follow suit. This step can help support prices, but comes with the penalty of operating expensive factories at less than full capacity, which can weigh heavily on profitability.

In addition to its planned workforce reductions, the company has suspended stock buybacks, cut executive salaries and will not pay company-wide bonuses, executives said on a conference call. after the publication of its results.

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

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

Micron shares were down about 2% in extended trading after closing at $51.19 in New York. The stock has fallen 45% this year, a decline worse than 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 around 20% “in response to market conditions”. Micron, based in Boise, Idaho, had 48,000 employees as of Sept. 1, according to filings.

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